Suburban Office CHICAGO Third Quarter
Third Quarter Table of Contents SUBURBAN OFFICE MARKET OVERVIEW 1 Page OFFICE SUBMARKET MAP 2 THIRD QUARTER STATISTICS 3 TOP THIRD QUARTER LEASE TRANSACTIONS 4 CHICAGO Third Quarter SUBMARKET OVERVIEWS O Hare 6 Northwest 7 North 8 Lisle/Naperville 9 Oak Brook East 10 ABOUT COLLIERS BENNETT & KAHNWEILER INC. 11
3Q Despite a few underperforming submarkets, conditions are stable in the suburban office market. Quarterly Market Trends 2Q 3Q 19.6% 19.7% 2Q 3Q 125,671 173,424 sf Under 2Q 3Q 298,000 sf 511,036 sf Suburban Office Overview and Supply The suburban office market vacancy rate increased only slightly in the third quarter to 19.7 percent from 19.6 percent in the second quarter. This marks the end of a string of six consecutive quarterly decreases in vacancy rate. Surprisingly, the Lisle-Naperville submarket again showed the most dramatic improvement as its vacancy rate dipped from 23.1 percent in the second quarter to 21.9 percent in the current quarter. The Lisle-Naperville and North submarkets were the only two to post a vacancy rate decrease. Overall, market conditions are continuing to improve due to the reduction of inventory in Class A space as tenants continue to capitalize on low rental rates and large concessions packages. Steady leasing activity contributed to positive net absorption of 173,424 square feet, bolstered by the 276,575 square feet contributed by the Lisle-Naperville market. The North market also registered positive absorption with a total of 108,977 square feet. Year-to-date absorption totals positive 1,094,034 square feet. Square Feet Absorbed 3,000,000 2,000,000 1,000,000-1,000,000-2,000,000-3,000,000-4,000,000-5,000,000 Historical and Lease and Sale Activity Steady leasing activity contributed to the stable vacancy rate, while small- to midsized tenants comprised the majority of activity. Only one lease transaction greater than 50,000 square feet was completed when Nashville, TN-based Caremark completed a 233,000-square-foot renewal and expansion at Caremark Towers in Northbrook. Investment sale activity remained strong as several metro area properties changed hands. In particular, a number of Naperville properties were sold including the 354,000-square-foot OfficeMax headquarters, the 124,000-squarefoot Corporate Lakes III, and Washington Pointe, a 163,623-square-foot building. The former Pepsi Americas headquarters in Rolling Meadows was recently put up for sale and is likely to attract interest from buyers with an appetite for risk. Additionally, there were several other properties listed for sale including President s Plaza and 1700 Higgins (O Hare); Tri-State International (North); and Chatham Centre (Northwest). Although no new construction was delivered to the entire suburban area in the third quarter, construction on buildings 100,000 square feet and greater has picked up. Opus North Corporation has broken ground on a 160,000-square-foot speculative property at 150 Saunders Road in Lake Forest. Duke Realty has broken ground on Cadence at Conway Park, a 102,700-square-foot office project in Lake Forest expected to deliver in summer 2007. Duke has also recently purchased 16 acres in Rosemont with plans to develop a three-building Class A office campus. 0 2000 2001 2002 2003 Abs orption 2004 2005 YTD Third Quarter December 2004 25% 20% 15% 10% 5% 0% Rate 1
s Office Submarket Parameters Third Quarter December 2004 2
Third Quarter Suburban Office Market Statistics Third Quarter December 2004 O'HARE Class Bldgs Total Inventory Sq. Ft. Existing Properties Direct Rate Sublease Rate Rate Current Qtr Rate Prior Qtr Net Current Qtr- Sq. Ft. Net YTD-Sq. Ft. Completions Current Qtr - Sq. Ft. Under Sq. Ft. Rent Asking Full Service Rent $ Per Sq. Ft. A 33 7,731,919 17.2% 3.1% 20.3% 20.5% 14,088 84,096 - - $ 25.08 B 59 5,372,236 22.6% 1.4% 23.9% 23.1% (44,524) 1,080 - - $ 18.59 C 13 787,970 48.4% 0.3% 48.7% 49.1% 3,754 43,060 - - $ 17.05 Total 105 13,892,125 21.1% 2.3% 23.3% 23.1% (26,682) 128,236 - - $ 22.09 NORTHWEST A 70 13,757,015 18.6% 3.7% 22.3% 21.7% (78,452) (321,103) - $ 22.19 B 168 10,784,233 21.5% 1.4% 23.0% 22.6% (41,410) 12,487 - - $ 17.19 C 34 1,723,250 13.0% 0.2% 13.1% 13.6% 65,210 75,771 - - $ 15.83 Total 272 26,264,498 19.4% 2.5% 22.0% 21.5% (54,652) (232,845) - - $ 19.73 NORTH A 109 15,279,693 13.2% 2.5% 15.7% 16.1% 54,780 266,409 298,000 $ 20.70 B 169 9,261,394 15.1% 2.2% 17.3% 17.1% 63,382 297,210 - $ 18.40 C 46 2,016,088 8.6% 0.2% 8.8% 8.3% (9,185) (68,677) - - $ 16.81 Total 324 26,557,175 13.5% 2.2% 15.7% 15.8% 108,977 494,942-298,000 $ 19.68 LISLE/NAPERVILLE A 33 5,042,275 18.3% 2.8% 21.2% 22.9% 88,251 535,117-213,036 $ 21.16 B 128 6,723,356 21.5% 5.7% 27.2% 28.6% 195,004 236,053 - $ 18.78 C 29 2,170,497 6.7% 0.5% 7.2% 6.9% (6,680) (39,037) - - $ 16.01 Total 190 13,936,128 18.0% 3.8% 21.9% 23.1% 276,575 732,133-213,036 $ 19.70 OAK BROOK A 69 13,424,544 14.9% 2.5% 17.4% 17.3% (16,875) 144,090 - - $ 22.03 B 147 8,803,645 18.2% 1.4% 19.6% 18.3% (113,919) (154,185) - - $ 18.38 C 30 1,614,335 14.3% 0.0% 14.3% 14.3% 0 (18,337) - - $ 15.84 Total 246 23,842,524 16.0% 2.0% 18.0% 17.5% (130,794) (28,432) - - $ 20.23 SUBURBAN TOTAL A 314 55,235,446 16.0% 2.9% 18.9% 19.0% 61,792 708,609-511,036 $ 22.23 B 671 40,944,864 19.5% 2.3% 21.8% 21.5% 58,533 392,645 - - $ 18.27 C 152 8,312,140 13.9% 0.2% 14.1% 14.1% 53,099 (7,220) - - $ 16.31 Total 1,137 104,492,450 17.2% 2.5% 19.7% 19.6% 173,424 1,094,034-511,036 $ 20.29 QUARTERLY COMPARISON AND TOTALS Q3-06 1,137 104,492,450 17.2% 2.5% 19.7% 19.6% 173,424 1,094,034-511,036 $ 20.29 Q2-06 1,133 104,192,676 17.2% 2.4% 19.6% 19.7% 125,671 920,610 45,835 298,000 $ 20.54 Q1-06 1,131 104,146,469 17.5% 2.2% 19.7% 20.4% 794,939 794,939 86,894 103,835 $ 20.63 Q4-05 1,129 104,059,575 18.1% 2.2% 20.4% 20.8% 481,255 1,354,485-265,729 $ 20.95 Q3-05 1,128 104,029,575 18.5% 2.3% 20.8% 21.0% 329,697 873,230 56,000 260,404 $ 21.11 The information contained in this report was provided by sources deemed to be reliable, however, no guarantee is made as to the accuracy or reliability. As new, corrected or updated information is obtained, it is incorporated into both current and historical data, which may invalidate comparison to previously issued reports. 3
Top Third Quarter Suburban Office Leases Third Quarter December 2004 Note: Bolded items indicate a Colliers B&K transaction Leases Market Address City SF Tenant North 2211 Sanders Road Northbrook 233,876 Caremark Oak Brook Oak Brook Oak Brook Westbrook Corporate Center 3 Westbrook Corporate Ct. Unisys Center I 333 E. Butterfield Rd. Highland Oaks II 1020 W. 31 st. St. Westchester 45,028 Andrew Corp. Lombard 45,000 SunGard Downers Grove 42,120 DuPage Medical Lisle-Naperville Royal Glen Office Center Glen Ellyn 40,000 InfoSource O Hare 1011 E. Touhy Ave Des Plaines 26,425 Maple Leaf Bakery O Hare International Tower 26,022 ubid O Hare O Hare Plaza 1 25,000 Hanley Wood Oak Brook Two Lincoln Centre 2 Lincoln Centre Oakbrook Terrace 25,000 Accredited Home Lending Lisle-Naperville Corporetum 111 750 Warrenville Rd. Lisle 24,600 Logicalis Northwest 2100 Corporate Dr. Addison 24,084 BancTec O Hare Columbia Centre II 9450 W. Bryn Mawr Ave. Rosemont 23,385 Rail Europe Oak Brook Esplanade 1 2001 Butterfield Rd. Downers Grove 23,000 Caterpillar North O Hare Tri State Int l Office Park 25 Tri State International O Hare International Office 10275 W. Higgins Rd. Lincolnshire 21,000 Saputo Rosemont 20,611 Procter & Gamble Oak Brook 350 E. 22 nd Street Lombard 20,575 The Carson Group Northwest Woodfield Corporate Center Schaumburg 20,000 Kronos Northwest Northwest Hamilton Lakes Bus Park 300 Park Blvd. Chatham Centre 1901 N. Roselle Rd. Itasca 19,894 Nextel Schaumburg 19,500 Pulte Homes 4
Top Third Quarter Suburban Office Leases Third Quarter December 2004 Note: Bolded items indicate a Colliers B&K transaction Leases cont Market Address City SF Tenant North Four Parkway North 4 Parkway Blvd North Deerfield 18,590 Ovation Pharmaceuticals Oak Brook Parkview Plaza 1 Parkview Plaza Oakbrook Terrace 18,233 Anderson Mikos Architect Northwest Atrium 11 3030 W. Salt Creek Lane Arlington Heights 17,717 People Finder Northwest The Chancellory 500 Park Blvd Itasca 16,703 Waterstone North 500 Davis St. Evanston 16,671 Schneider Resources North Tri State Int l Office Park 300 Tri State International Lincolnshire 16,000 Greater Bay Capital Oak Brook Commerce Plaza 11 2015 Spring Lake Rd. Oak Brook 16,000 National City Bank 5
Third Quarter O Hare 13,900,000 SF Historical and 3Q The O Hare office market has now surpassed Lisle-Naperville with the highest overall vacancy rate in the metropolitan area. and Supply The O Hare vacancy rate increased marginally in the third quarter of to 23.3 percent from the 23.1 percent witnessed in the second quarter. This was the highest vacancy rate of all office markets. The vacancy rate during this same time period in 2005 measured 23.6 percent. Sublease vacancies stood at 2.3 percent, about average for all submarkets. Lease and Sale Activity Despite a nominal increase in vacancy rate, leasing activity was steady with a handful of small- to mid-sized transactions completed. The largest lease transaction of the quarter occurred when Maple Leaf Bakery completed a 26,425-square-foot expansion at 1011 E. Touhy Avenue in Des Plaines. Other notable transactions included ubid s 26,022-squarefoot sublease at International Tower and Hanley Wood s 25,000-square-foot new lease at O Hare Plaza One. As was the case in most other submarkets, there were no transactions completed in the third quarter greater than 30,000 square feet. 6 23.1% -169,138 SF 0 SF Pictured Above: Colliers B&K negotiated a 26,425-SF expansion for Maple Leaf Bakery at 1011 E. Touhy Avenue, Des Plaines 2Q 3Q -500,000 23.3% -26,682 SF 0 SF Square Feet Absorbed 400,000 300,000 200,000 100,000 0-100,000-200,000-300,000-400,000 2000 2001 2002 2003 The slow-down in leasing activity caused net absorption to total negative 26,682 square feet. However this was still an improvement over the negative 169,138 square feet absorbed in the second quarter. While Class A and Class C properties achieved positive absorption, the negative 44,524 square feet of absorption in the Class B segment was damaging to the overall result. Despite negative absorption in the past two quarters, O Hare s year-to-date total net absorption figure is still positive, totaling 28,236 square feet There were no construction completions in the third quarter, however, Duke Realty Corporation has announced its purchase of 16 acres at 9800-9850 Balmoral Avenue to construct up to 550,000 square feet of new Class A office space. Duke also has underway an 80,000-square-foot build-to-suit for GSA on the Balmoral Campus. Across Interstate 294 from the Duke development, the Village of Rosemont has broken ground on a $500 million entertainment and retail town center-style complex. It will include the largest indoor water park in the state, a 22- screen movie theater, a four-star luxury hotel, a bowling center, offices, retail stores, and an ice rink, much of it surrounding a "pedestrian friendly" town center that will serve as a hub for civic and social events. 2004 2005 YTD 30% 25% 20% 15% 10% 5% 0% Rate
Third Quarter Northwest 26,300,000 SF 3Q 1,000,000 Historical and 25% Net absorption in the Northwest Market will continue to suffer until Citicorp takes occupancy of nearly 200,000 square feet at Northwest Point. and Supply 2Q 21.5% -238,872 SF 58,000 SF 3Q 22.0% -54,652 SF 0 SF The Northwest vacancy rate increased fairly significantly from 21.5 percent in the second quarter to 22.0 percent at the end of the third quarter. At 22.0 percent the Northwest market s vacancy rate measured the second-highest of all submarkets, outperforming only the O Hare market (23.3 percent). Lease and Sale Activity The largest lease transaction to occur in the Northwest market was a 24,084-square-foot new lease to Banc Tec at 2100 Corporate Drive, Addison. This is in sharp contrast to last quarter s largest transaction, a 176,848-square-foot lease to Citicorp at 50 Northwest Point in Elk Grove Village. Other significant lease transactions in the Northwest market included a 20,000-square-foot lease for Kronos at Woodfield Corporate Center in Schaumburg and a 20,000-square-foot lease for Nextel at 300 Park Boulevard in Itasca. Chatham Centre in Schaumburg has also witnessed a great deal of activity recently, as its occupancy rate has risen to more than 90 percent from only 65 percent 18 months ago. There were no major investment sales in the Northwest market in the third quarter, however, there are several buildings currently being marketed that should close by yearend. Most notably, the former Pepsi Americas headquarters building in Rolling Meadows was recently put up for sale. 7 Square Feet Absorbed 500,000 0-500,000-1,000,000-1,500,000 2000 Net absorption in the Northwest market is still suffering and measured negative 54,652 square feet in the third quarter. The negative net absorption figures are deceiving, as the 176,848-square-foot Citicorp transaction at 50 Northwest Point won t factor into absorption until the company assumes occupancy later this year. Year-to-date net absorption in the Northwest market stands at negative 232,845 square feet. 2001 2002 There were no construction completions in the third quarter, however, Opus North Corporation is expected to close in the fourth quarter on 19 acres of land in the Northwest Point Business Park in Elk Grove Village. The company plans to offer a wide range of build-to-suit office product which can accommodate between 40,000 and 800,000 square feet. Serta International is expected to begin construction on a hew headquarters facility in Hoffman Estates. The new headquarters, located on 19 acres of the Prairie Stone Business Park, will measure 90,000 square feet with expected delivery in summer 2007. The new Sears Center in Hoffman Estates officially opened its doors as the home of an 11,000-seat arena that is expected to attract more than 750,000 visitors annually and will include the debut of the United Hockey League in Hoffman Estates. 2003 2004 Pictured Above: Colliers Bennett & Kahnweiler negotiated a 24,084-square-foot lease to Banc Tec at 2100 Corporate Drive, Addison 2005 YTD 20% 15% 10% 5% 0% Rate 5
Third Quarter North 26,600,000 SF 3Q Historical and The North Market remains the picture of stability with the area s lowest vacancy rate, healthy leasing activity, and new office product on the way. 2Q 15.8% 3Q 15.7% Square Feet Absorbed 600,000 400,000 200,000 0-200,000-400,000-600,000 2000 2001 2002 2003 2004 2005 YTD 25% 20% 15% 10% 5% Rate and Supply in the North market continued to improve, although slightly, in the third quarter of, reaching 15.7 percent from 15.8 percent in the second quarter. The North Market s vacancy rate continues to be the lowest of all -area office submarkets, far outperforming its closest competitor, the Oak Brook area, which measures 18.0 percent. Sublease vacancies are also low when compared to the other submarkets, with 2.2 percent of the total inventory available for sublease. Lease and Sale Activity 54,543 SF 160,000 SF 108,977 SF 298,000 SF The largest renewal of the quarter occurred in the North market as Nashville, TN-based Caremark renewed its 195,000-square-foot lease at its namesake Caremark Towers in Northbrook, a building it has occupied since 1993. The company also completed an expansion and now occupies a total of 233,876 square feet. The balance of the leasing activity was composed mostly of small- to mid-sized transactions. Ovation Pharmaceuticals signed an 18,590-square-foot new lease at Four Parkway North in Deerfield while Greater Bay Capital relocated within Lincolnshire s Tri-State International Office Park to 16,000 square feet. The largest investment sales in the North market were Bannockburn Lakes III in Bannockburn, 1603 Orrington in Evanston, and Deerfield Business Center in Deerfield. -800,000 The North Market, second only to the Lisle-Naperville market, achieved positive net absorption of 108,977 square feet. Year-to-date absorption totals a healthy 494,942 square feet. The North Market s Class C properties were the only segment in the market to post negative absorption, totaling negative 9,185 square feet. The North Market is the primary recipient of new construction that is planned or underway. Opus North Corporation has broken ground on a 160,000-square-foot speculative property at 150 South Saunders Road in Lake Forest with an expected completion in fourth quarter 2007. is still underway on Duke Realty Corporation s Cadence at Conway Park, a new office project in Lake Forest expected to deliver in summer 2007 for tenant Hospira. Duke plans on adding another 100,000 square foot building to break ground in early 2007.. Pictured Above: Colliers Bennett & Kahnweiler negotiated an 18,590-square-foot lease for Ovation Pharmaceuticals at Four Parkway North, Deerfield 0% 8
Lisle-Naperville 14,000,000 SF Third Quarter 3Q Lisle-Naperville is quickly repairing the damaged reputation it received in the immediate years following the tech bust and no longer claims the highest suburban vacancy rate. 2Q 23.1% 460,469 SF 75,000 SF 3Q 21.9% 276,575 SF 213,036 SF Square Feet Absorbed 1,000,000 800,000 600,000 400,000 200,000 0-200,000-400,000-600,000-800,000-1,000,000 Historical and 2000 2001 2002 2003 2004 2005 YTD 35% 30% 25% 20% 15% 10% 5% 0% Rate and Supply The Lisle-Naperville vacancy rate decreased substantially in the third quarter to 21.9 percent, down from 23.1 percent in the second quarter. After several years above 30 percent, Class A vacancy has plummeted to only 21.2 percent. Class B vacancy measures 27.2 percent. Lease and Sale Activity The largest third quarter transactions included a 40,000- square-foot lease to InfoSource at 1200 Roosevelt Road in Glen Ellyn and a 24,600-square-foot lease to Logicalis at Corporetum III in Lisle. While third quarter leasing activity in Lisle-Naperville was respectable, the real story was investment sales as several properties changed hands. Brandywine Realty Trust recently sold Corporate Lakes III, a 124,000-square-foot building in Lisle, to Colony Real Estate Advisors. Also, Wells Real Estate Investment Trust II acquired the national headquarters of OfficeMax, the five-story 354,000-square-foot Naperville office building at 263 Shuman Boulevard. Pictured Above: Colliers Bennett & Kahnweiler negotiated a 24,600-square-foot lease to Logicalis at Corporetum III, Lisle 9 Lisle-Naperville achieved 276,575 square feet of positive net absorption in the third quarter, further bolstering the 460,469 square feet achieved in the second quarter. Year-to-date absorption totals positive 732,133 square feet, already doubling the total absorption achieved in all of 2005. There were no new construction deliveries to the Lisle- Naperville Market in the third quarter, however, 213,036 square feet are currently under construction. Calamos Investments, following the 2005 completion of its 184,000-square-foot Naperville headquarters at 2020 Calamos Court, is set to begin construction on the neighboring CityGate Center. Located on 31 acres at the interchange of I-88 and Illinois 59, the proposed project will include 1.2 million square feet of space, including office, restaurants and shops, a 140-room hotel and a performing arts center. The first phase of the project will include a 238,000-square-foot office building featuring floorplates up to 34,000 square feet, incorporating various energyefficiency design elements to be LEED certified. 7
Third Quarter Oak Brook East 23,800,000 SF 3Q Historical and Oak Brook East is measuring its worst performance in net absorption since 2003 and is not expected to recover much in the fourth quarter. 2Q 17.5% 3Q 18.0% Square Feet Absorbed 1,000,000 500,000 0-500,000-1,000,000 2000 2001 2002 2003 2004 2005 YTD 25% 20% 15% 10% 5% Rate 18,669 SF -130,794 SF -1,500,000 0% 0 SF 0 SF and Supply The Oak Brook East vacancy rate, consistently one of the lowest of all submarkets, increased in the third quarter to 18.0 percent, up from 17.5 percent in the second quarter. Only the North market achieved a lower vacancy rate (15.7 percent). Sublease vacancies totaled only 2.0 percent, the lowest of all markets. Lease and Sale Activity There was a large number of significant lease transactions completed in Oak Brook East in the third quarter, mostly consisting of new leases and subleases. The largest transactions included a 45,028-square-foot sublease to Andrew Corporation at Westbrook Corporate Center in Westchester; a 45,000-square-foot new lease to SunGard at 333 E. Butterfield Road in Lombard, and a 42,120- square-foot lease to DuPage Medical at Highland Oaks II in Downers Grove. Despite the respectable number of completed transactions, Oak Brook East net absorption suffered, totaling negative 130,794 square feet. Class B properties fared the worst with a total of negative 113,919 square feet. After posting two very strong years in the terms of net absorption in 2004 and 2005, Oak Brook East is measuring negative 28,432 square feet of net absorption year-to-date. No new construction was delivered to the mature Oak Brook East market in the third quarter, and there is nothing currently under construction. Pictured Above: Colliers Bennett & Kahnweiler negotiated a 18,233-square-foot lease for Anderson Mikos Architects at One Parkview Plaza, Oakbrook Terrace 10
Third Quarter About is a member/owner of Colliers International, one of the three largest real estate services firms in the world with 241 offices in 54 countries. Locally, Colliers Bennett & Kahnweiler offers full service real estate services including office, retail, investment, and industrial brokerage; development; project/construction management; and property/asset/facility management. Headquartered in Rosemont, Illinois, the firm also maintains offices in downtown and Denver, CO. In total, some 140 persons are employed by the firm more than half of which are brokerage professionals. Headquarters 6250 N. River Road, Suite 11-100 Rosemont, IL 60018 847/698-8444 (main number) 847/698-8445 (fax) www.colliersbk.com Principals David Kahnweiler, SIOR President and CEO Chairman, Colliers USA William Fausone, SIOR Chief Operating Officer David Bercu, SIOR Colliers Manager Daniel Arends Richard Berger Gerald Cernick Robert Chodos, SIOR Kevin Clifton, SIOR Steven Disse, SIOR Jeffrey Kahan Gregory Pacelli, SIOR Jack Rosenberg, SIOR Department Leadership Daniel Arends Richard Berger Robert Chodos, SIOR Directors of Corporate Office Group Kevin Clifton, SIOR Director of Suburban Office Group James Degnan, SIOR Director of Industrial Service Group Jeffrey Kahan Director of Investment Services Group Branch Offices 200 S. Wacker Drive, Suite 3030, IL 60606 312/698-9150 (main number) 312/648-9149 (fax) 4643 South Ulster Street Suite 1000 Denver, CO 80237 303/745-5800 (main number) 313/745-5888 (fax) Colliers International is a shareholder in Boston-based Colliers International Property Consultants, a worldwide commercial real estate organization. Colliers provides immediate access to more than 9,300 professionals in 241 offices throughout 54 countries on six continents. Colliers International is composed of the best local real estate companies in key world markets. Each member provides immense local insight as to customs, trends and cultural standards; a sound experiential base and an extraordinary staff of professionals committed to all Colliers International clients. Market coverage of Colliers International spans the Americas, Europe, Africa, the Middle East and Asia/Pacific. Phil Stafford Senior Vice President Colliers Real Estate Management Services LLC 11 9