NAI Hiffman YER 2011.indd
Transcription
NAI Hiffman YER 2011.indd
Committed to Chicago. Connected to the World.™ NAI Hiffman Metropolitan Chicago Market Review & 2012 Forecast hiffman.com To our valued customers, partners and future clients... We enter 2012 in much the same way that we entered 2011: hopeful but watchful, cautious but optimistic. Our economists tell us we have reason to be tentative – it being an election year, we’re unlikely to see much in the way of straight talk on the economy as both sides jostle and jab each other, scrambling for votes. One side will tell you things are better than they are; the other, that they’re worse. What’s missing in all the back-and-forth is a strong voice and a clear direction – and over the past few months, we’ve seen how important those things can be. Many of us will watch the upcoming Super Bowl in a few days and we will even wager our personal reputations on its outcome with great confidence. The wager implies that the result is not a sure thing - statistics predicting completion percentages or passing totals can get thrown out the window on game day with the addition of adrenalin, cheering fans and the ephemeral element of “who shows up”. It is undeniable that something deeper than pure numbers gives a team direction and takes it to victory. A great part of the depth of a team depends on the leadership qualities of its star players. Scouts call these qualities “intangibles”, and it is often those very characteristics that determine success or failure. The commercial real estate industry is no different. It is ironic that ultimately, all the hard numbers and bottom lines of our industry hinge upon intangibles: Fear, and belief. One stifles progress and smothers growth, the other inspires and builds confidence. With the political picture unclear and contentious for the foreseeable future, the commercial real estate industry can take a leadership role in helping to bring our economy into focus for 2012. As real estate experts, we provide our clients with the information necessary to find the best solutions to move their companies forward. Guidance and expertise can be a powerful tool in fostering a positive business environment; we hope that the latest snapshot of our economic world contained in the following pages will assist you in the coming year. Regards, David A. Petersen, RPA CEO, NAI Hiffman CEO, NAI Hiffman Asset Management Table of Contents NAI Hiffman Metropolitan Chicago Market Review & 2012 Forecast Local Economy. . . . . . . . . . . . . . . . . . . . . . 4 Office Market Statistics . . . . . . . . . . . . . . . 7 Downtown Office Market Summary . . . . . . 8 Suburban Office Market Summary. . . . . . . 9 Office Market Overviews 1 West Loop. . . . . . . . . . . . . . . . . . . . . 10 2 Central Loop . . . . . . . . . . . . . . . . . . . 12 3 East Loop . . . . . . . . . . . . . . . . . . . . . 14 4 North Michigan Avenue . . . . . . . . . . 16 5 River North . . . . . . . . . . . . . . . . . . . . 18 6 North Suburban . . . . . . . . . . . . . . . . 20 7 Northwest Suburban. . . . . . . . . . . . . 22 8 O’Hare Area . . . . . . . . . . . . . . . . . . . 24 9 East-West Corridor . . . . . . . . . . . . . . 26 10 I-55 Corridor . . . . . . . . . . . . . . . . . . . 28 Medical Office Review . . . . . . . . . . . . . . . . 30 Industrial Market Statistics. . . . . . . . . . . . . 33 Industrial Submarket Overviews 1 Lake County . . . . . . . . . . . . . . . . . . . 36 2 Southeast Wisconsin . . . . . . . . . . . . 38 3 I-90/Northwest . . . . . . . . . . . . . . . . . 40 4 Northwest Cook . . . . . . . . . . . . . . . . 42 5 North Cook . . . . . . . . . . . . . . . . . . . . 44 6 Fox Valley . . . . . . . . . . . . . . . . . . . . . 46 7 Central DuPage . . . . . . . . . . . . . . . . 48 8 O’Hare. . . . . . . . . . . . . . . . . . . . . . . . 50 9 West Cook . . . . . . . . . . . . . . . . . . . . 52 10 Chicago . . . . . . . . . . . . . . . . . . . . . . 54 11 I-88 Corridor . . . . . . . . . . . . . . . . . . . 56 12 I-55 Corridor . . . . . . . . . . . . . . . . . . . 58 13 South Cook. . . . . . . . . . . . . . . . . . . . 60 14 I-80/Joliet Corridor . . . . . . . . . . . . . . 62 15 Northwest Indiana. . . . . . . . . . . . . . . 64 Industrial Market Summary . . . . . . . . . . . . 34 Logistics Review . . . . . . . . . . . . . . . . . . . . 66 Retail Review . . . . . . . . . . . . . . . . . . . . . . . 68 Investment Market Review . . . . . . . . . . . . . 69 Industrial Investment Review . . . . . . . . . . . 73 Submarket Maps . . . . . . . . . . . . . . . . . . . . 74 NAI Global . . . . . . . . . . . . . . . . . . . . . . . . . 76 Methodology/Definitions . . . . . . . . . . . . . . 77 NAI Hiffman/Company Roster . . . . . . . . . . 78 NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 3 Local Economy POPULATION (2010 CENSUS) 9,461,105 POPULATION CHANGE (2000-2010) +4.0% NUMBER OF HOUSEHOLDS (2008) 3,516,729 MEDIAN HOUSEHOLD INCOME (2008 EST.) $67,234 GROSS METRO PRODUCT (2010) $532 BILLION LABOR FORCE 4,075,100 TOTAL JOBS GAINED (12/10-12/11) -31,269 CHICAGO AREA UNEMPLOYMENT RATE 9.8% ILLINOIS UNEMPLOYMENT RATE 10.0% U.S. UNEMPLOYMENT RATE 8.5% Unemployment and Work Force Participation 12% 68% Metro Chicago Unemployment Rate U.S. Unemployment Rate 67% 10% U.S. Labor Force Participation Rate 2011 2010 2009 2008 2007 2% 2006 63% 2005 4% 2004 64% 2003 6% 2002 65% 2001 8% 2000 66% Source: Bureau of Labor Statistics Case-Shiller Home Price Indices 200 Chicago Case-Shiller Index Local Economy Review The third largest metropolitan area in the U.S. after New York and Los Angeles, Chicago is the most influential economic region between the East and West Coasts. Foreign Policy Magazine recently ranked Chicago sixth among world competition, measuring econometrics from the number of Fortune 500 companies to the flow of goods and services through airports and ports. Situated at the geographical heart of the nation, Chicago’s locational advantages have fostered its development into an international center for banking, securities, high technology, air transportation, business services, wholesale and retail trade, and manufacturing. In addition, Chicago is one of the principal trading centers for commodities, financial, and derivative futures products with the Chicago Mercantile Exchange and Board of Trade. U.S. National Case-Shiller Index 150 100 2011 2010 2009 2007 2005 2003 2001 1999 1997 1995 1993 1991 1989 1987 50 Source: Standard & Poor’s Total U.S. Employment 1,200,000 6% 800,000 4% 400,000 2% 0 0% -2% -400,000 Percent Change in Jobs from Previous Year Monthly Net Change in Jobs -800,000 2011 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 -1,200,000 -4% -6% Source: Commodity Systems, Inc. (CSI) Year in Review Two-and-a-half years into the economic recovery, where are we now? In terms of the U.S. gross domestic product, 2010 was actually more encouraging than 2011. The first quarter of 2011 saw such meager growth, only 0.4% on an annual change basis, that the concerns of a double-dip recession started sounding more and more real. Luckily, GDP growth picked up through the rest of the year, though still remained weak, at 1.3% growth during the second quarter and 1.8% growth during the third quarter. Each time the U.S. economy appears poised to pick up in earnest, a significant event somewhere in the world seems to result in another setback in the economic recovery, and 2011 was full of such events. From political indecision and the Standard & Poor’s downgrade of debt here in the U.S., to March’s devastating earthquake and resulting tsunami and nuclear disaster in Japan, the debt crisis and potential collapse of the Euro throughout Europe, an uprising in Libya that ended in the assassination of Muammar Gaddafi, and the withdrawal of American troops in Iraq, it’s a bit of a surprise that we didn’t see another worldwide recession begin in 2011. Yet the economic recovery Local Economy Review Consumer Price Indices (CPI) 6% 4% 2% 0% Core CPI 12-Month Percent Change -2% (excludes volatile food and energy prices) CPI 12-Month Percent Change 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 -4% 2000 continues, as anemic and measured as it has been. Improvement in the labor market has been a little more encouraging, and even accelerated towards the end of the year, as job gains for the month of December were above forecasts, and the U.S. unemployment rate dropped to 8.5%. However, 5.8 million of the jobs lost during the recession have still yet to be recovered, and the current recovery is still seeing the slowest jobs rebound since the Great Depression. This is further evidenced by the labor force participation rate which remains low at 64%. To put this in perspective, the participation rate was 66% in 2007 before the downturn began. This two percentage point difference is the equivalent of about three million fewer Americans working or looking for work, even as the population continues to increase. Source: Bureau of Labor Statistics Crude Oil Prices $150 50% 30% $120 2011 2010 2009 2007 Source: WTRG Economics Monthly Job Change vs. Consumer Sentiment 100 500,000 Monthly Job Change Consumer Sentiment 90 300,000 100,000 80 -100,000 70 -300,000 -700,000 4Q11 3Q11 2Q11 1Q11 4Q10 3Q10 2Q10 1Q10 4Q09 3Q09 2Q09 1Q09 4Q08 3Q08 2Q08 1Q08 4Q07 3Q07 2Q07 1Q07 50 -500,000 Disconnect between job figures and consumer sentiment 60 -900,000 Source: Reis U.S. Imports & Exports - Trade Balance $250 B November 2011 Trade Deficit -$47.8 B Trade Deficit $200 B $150 B U.S. Imports U.S. Exports 2011 2010 2009 2008 2007 2006 Looking Forward Job growth will be one of the biggest, if not the biggest, issue on the table during the 2012 election season. While 30% of the private jobs lost over the course of the recession have been regained and the rate of growth has picked up during recent months, it still remains well below rates witnessed during past recovery periods. Political gridlock and uncertainty continue to stall the potential growth in the labor market, as many businesses would still rather sit on record profits and see what transpires on the political front rather than make significant expansion plans amidst a world debt crisis. The path the recovery takes through 2012 and beyond will continue to be dictated by the type of leadership role politicians assume and whether another globechanging event occurs. Most likely, barring any unforeseen major natural disaster or significant event that sends the government and businesses into panic mode, the economy will continue to grow at a modest rate through much of 2012 as the election season heats up. Hopefully a clearer picture of the recovery will present itself as the year unfolds. 2005 $0 2003 -50% 2001 $30 1999 -30% 1997 $60 1995 -10% 1993 $90 1991 10% 1989 What these developments in the U.S. and world economies mean for commercial real estate is still uncertain. Despite little economic growth and ongoing job concerns, activity has increased in leasing and investment sales across all property types. Strong retail sales figures over the holiday season, yearover-year improvements in industrial production, record U.S. exports, an uptick in the manufacturing industry, and record high corporate profits are all encouraging trends that point to the economic recovery continuing to gain momentum and have resulted in increased real estate demand. During the peak of the fear caused by the economic crisis in late 2008, many had speculated that following the Lehman Brothers collapse, commercial real estate would be next in line to take it on the chin due to outstanding debt, resulting in severely depressed values and an uncertain future. While this doomsday scenario didn’t play out as projected, the real estate market still has a long way to go to return to historically stable conditions. Crude Oil Price Monthly Percent Change $100 B Source: U.S. Census Bureau NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 5 Office Market Overviews 1 West Loop . . . . . . . . . . . . . . 10 2 Central Loop . . . . . . . . . . . . 12 3 East Loop . . . . . . . . . . . . . . 14 4 North Michigan Avenue. . . . 16 nry McHenry 5 94 6 River North . . . . . . . . . . . . . 18 FAR North Suburban. . . . . . . . . . 20 7 Northwest Suburban . . . . . . 22 Libertyville 8 O’Hare Area. . . . . . . . . . . . . 24 9 East-West Corridor . . . . . . . 26 10 I-55 Corridor . . . . . . . . . . . . 28 Waukegan Regional Airport FAR NORTH Buffalo Grove 294 Des Plaines 290 North Aurora Aurora 94 290 EASTERN EAST-WEST 294 9 88 Chicago CBD (Central Business District)90 Downers Westmont Grove Burr Ridge Naperville Chicago Chi Mi iid d Chicago Midway Midway Airport Airport 171 10 Romeoville 55 41 94 Oak St. Chicago Ave. 90 I-55Darien CORRIDOR Bolingbrook Chicago Elmhurst Lombard WESTERN EAST-WEST 90 Franklin Park 5 Ohio 43 St.12 290 4 20 41 12 20 Oak Lawn 90 94 Wacke rD 57 50 83 94 3 1 r. Randolph St. Michigan Ave. 355 Skokie 90 8 Rosemont O’HARE AREA Addison Carol Stream Niles Evanston Wells St. Dupage Airport Wood Dale NEAR NORTH State St. Elk Grove Village NORTH DUPAGE 94 Glenview Halsted St. St Charles Chicago Executive Airport SCHAUMBURG Schaumburg AREA South Elgin Deerfield Arlington Heights Hanover Park Highland Park Northbrook Palatine Hoffman Estates Elgin Lake Forest CENTRAL NORTH 7 90 6 Vernon Hills Wacker Dr. Cr Crystal Lakee Dundee Waukegan Grayslake 2 Harvey 6 290 294 80 Winter 2011-2012 Market/ Submarket # Bldgs. (SF) Total RBA Direct Vacancy Sublease Vacancy Total 4Q11 Net 2011 YTD Net Under Asking Vacancy Absorption (SF) Absorption (SF) Constr. (SF) Rental Rate West Loop Class “A” Class “B” Class “C” 111 33 36 42 45,399,037 30,193,318 11,234,046 3,971,673 13.49% 13.26% 15.45% 9.65% 0.96% 14.45% 1.21% 14.47% 0.60% 16.05% 0.09% 9.74% 310,090 297,620 8,447 4,023 1,045,971 650,431 249,914 145,626 0 0 0 0 $29.77 $32.08 $28.21 $23.36 Central Loop Class “A” Class “B” Class “C” 84 24 33 27 39,137,724 19,661,779 15,790,580 3,685,365 12.86% 12.08% 14.75% 8.85% 1.05% 13.91% 1.35% 13.43% 0.85% 15.60% 0.36% 9.21% 131,065 -94,462 210,822 14,705 432,243 56,402 384,696 -8,855 0 0 0 0 $28.59 $31.38 $27.16 $19.28 East Loop Class “A” Class “B” Class “C” 71 10 20 41 23,842,356 10,864,735 7,588,848 5,388,773 14.28% 12.18% 18.54% 12.52% 1.44% 2.35% 1.04% 0.17% 15.72% 14.53% 19.58% 12.69% 236,975 138,040 68,762 30,173 809,654 887,466 -39,214 -38,598 0 0 0 0 $26.25 $28.48 $24.51 $21.10 North Michigan Ave. Class “A” Class “B” Class “C” 62 11 34 17 13,141,925 6,202,259 6,131,682 807,984 14.91% 16.75% 12.79% 16.93% 1.49% 0.78% 2.41% 0.00% 16.40% 17.53% 15.19% 16.93% 249,997 262,959 -7,355 -5,607 237,139 316,063 -48,183 -30,741 0 0 0 0 $29.52 $33.42 $25.78 $22.64 River North Class “A” Class “B” Class “C” 126 6 41 79 13,530,272 4,088,938 5,798,248 3,643,086 10.90% 12.17% 7.24% 15.31% 3.11% 1.89% 5.87% 0.09% 14.01% 14.06% 13.11% 15.40% 46,204 89,142 -34,753 -8,185 47,190 54,338 -60,203 53,052 0 0 0 0 $28.65 $34.24 $27.10 $21.12 Downtown Totals Class “A” Class “B” Class “C” 454 84 164 206 135,051,314 71,011,029 46,543,404 17,496,881 13.32% 13.01% 14.34% 11.88% 1.34% 1.42% 1.65% 0.17% 14.66% 14.44% 15.99% 12.05% 974,331 693,299 245,923 35,109 2,572,197 1,964,703 487,010 120,484 0 0 0 0 $28.56 $31.92 $26.55 $21.50 North Suburban Class “A” Class “B” Class “C” 524 132 256 136 29,943,140 17,109,270 9,904,917 2,928,953 16.30% 14.25% 19.89% 16.15% 2.69% 4.60% 0.11% 0.22% 18.99% 18.85% 20.01% 16.37% 194,273 174,669 -9,372 28,976 177,253 290,456 -73,203 -40,000 425,000 425,000 0 0 $20.21 $20.94 $19.43 $17.80 Northwest Suburban Class “A” Class “B” Class “C” 584 102 336 146 33,746,831 16,635,158 14,096,648 3,015,025 25.05% 24.14% 27.22% 19.95% 1.10% 0.89% 1.27% 1.49% 26.15% 25.03% 28.48% 21.44% -147,997 -99,877 -28,337 -19,783 96,347 351,532 -75,618 -179,567 0 0 0 0 $19.71 $22.30 $18.08 $15.92 O’Hare Area Class “A” Class “B” Class “C” 170 36 87 47 15,263,637 8,081,341 6,169,692 1,012,604 21.40% 18.28% 26.28% 16.54% 0.71% 0.66% 0.91% 0.00% 22.11% 18.94% 27.19% 16.54% 148,000 200,369 -40,107 -12,262 152,506 361,376 -162,525 -46,345 0 0 0 0 $20.25 $23.80 $18.52 $17.34 East-West Corridor Class “A” Class “B” Class “C” 664 141 346 177 42,710,999 20,870,182 16,844,042 4,996,775 19.01% 16.24% 23.29% 16.17% 2.93% 3.99% 2.49% 0.00% 21.94% 20.24% 25.78% 16.17% 41,480 -10,762 -20,333 72,575 550,943 612,169 -108,288 47,062 486,277 468,263 18,014 0 86 11 57 18 4,019,255 698,578 2,685,974 634,703 13.13% 11.83% 13.93% 11.15% 1.51% 1.01% 2.00% 0.00% 14.64% 12.84% 15.93% 11.15% 16,504 3,027 4,234 9,243 -54,571 13,698 -50,189 -18,080 0 0 0 0 Suburban Totals Class “A” Class “B” Class “C” 2,028 422 1,082 524 125,683,862 63,394,529 49,701,273 12,588,060 20.09% 17.99% 23.59% 16.85% 2.07% 2.88% 1.45% 0.41% 22.16% 20.87% 25.04% 17.25% 252,260 267,426 -93,915 78,749 922,478 1,629,231 -469,823 -236,930 911,277 893,263 18,014 0 $20.08 $22.22 $18.90 $16.93 Metro Chicago Totals Class “A” Class “B” Class “C” 2,482 506 1,246 730 260,735,176 134,405,558 96,244,677 30,084,941 16.59% 15.36% 19.12% 13.96% 1.69% 2.11% 1.54% 0.27% 18.28% 17.47% 20.66% 14.23% 1,226,591 960,725 152,008 113,858 3,494,672 3,593,934 17,187 -116,449 911,277 893,263 18,014 0 $24.32 $27.07 $22.73 $19.21 I-55 Corridor Class “A” Class “B” Class “C” Office Market Statistics Office Market Statistics $20.16 $22.74 $18.68 $17.17 $20.07 $21.30 $19.81 $16.40 NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 7 Office Market Summary Downtown Office Market Summary 2011 Downtown Vacancy and Absorption The Chicago Loop, Wacker Drive, North Michigan Avenue and the South Michigan Avenue Streetwall are all iconic landmarks that represent 2,000,000 20% 1,000,000 17% 0 14% -1,000,000 11% Chicago worldwide. Historic buildings and modern high-rises define Chicago’s famous skyline, home to several of the tallest buildings in the country. The Chicago River cuts through the city’s Central Business District, while Grant Park and Millennium Park provide large tracts of 2007 -2,000,000 2008 2009 Vacancy Rate (%) verdant green space in the heart of the city. These landmarks, combined 2010 2011 8% Net Absorption (SF) with O’Hare International Airport and public transportation including the “El”, commuter train lines and dozens of bus lines, all make Chicago’s Downtown Direct & Overall Vacancy 24-hour downtown a world-class business center and tourist destination. Year in Review 15.72% 14.66% 14.45% 13.32% 13.49% 13.91% 14.28% 16.40% 14.91% 14.01% 12.86% 10.90% 2011 marked a year of recovery for the downtown office market, as the vacancy rate dropped by 184 basis points over the course of the year to 14.66% by the end of December, the lowest rate recorded downtown River North North Michigan Avenue Direct Vacancy space absorbed, totaling 974,331 SF. All five downtown submarkets East Loop Central Loop West Loop SF for the year, with the fourth quarter seeing the largest chunk of that Overall Downtown in two-and-a-half years. Net absorption totaled more than 2.5 million Sublease Vacancy experienced improving conditions throughout 2011, with the historically active West Loop submarket seeing the absorption of more than 1 Looking Forward million SF of vacant space alone, pushing the vacancy rate down 3.7% More than half of the vacant space that was introduced over the past two years. However, the typically quiet North Michigan to the downtown office market during and following Avenue submarket witnessed the largest vacancy adjustment of the the economic recession has been absorbed during fourth quarter, as two of the largest new leases of the year were signed the past year-and-a-half. However, the majority of in the Miles van der Rohe-designed building at 330 N Wabash Avenue, this activity has been among high-quality class “A” absorbing some of the space left behind when Jenner & Block left the buildings. Eventually this demand will translate to the building in 2009. This activity pushed the vacancy rate down nearly two class “B” and “C” buildings throughout the market, percentage points during the three month period, a major drop for one adding momentum to the market recovery and pushing of the smaller downtown submarkets. the vacancy rate closer towards historical lows. Significant Downtown Office Lease Transactions 4th Qtr 2011 Property Address Submarket Property Name Leased (SF) Tenant Comments 200 E Randolph St East Loop Aon Center 400,000 Aon Corporation Lease renewal 500 W Monroe St West Loop 371,000 GE Capital Lease renewal/expansion 330 N Wabash Ave North Michigan Avenue 330 North Wabash 273,456 American Medical Association New lease 330 N Wabash Ave North Michigan Avenue 330 North Wabash 111,081 SmithBucklin Corp. New lease 300 S Riverside Plaza West Loop Riverside Plaza 77,000 DeVry Inc New lease 111 E Wacker Dr East Loop One Illinois Center 66,000 Publicis Worldwide Lease renewal/expansion Pictured Above: 330 N Wavash Avenue, where two of the largest new leases of the year were signed, pushing the North Michigan Avenue submarket down nearly two percentage points during the fourth quarter Office Market Overview Office Market Summary 2011 Suburban Office Market Summary Suburban Vacancy and Absorption Comprised of several scattered pockets of office developments, 1,500,000 26% 750,000 23% 0 20% -750,000 17% corporate parks and high-rise office towers, the suburban office market has experienced historically higher vacancy rates, larger swings in absorption, and lower rents than Chicago’s downtown office market. -1,500,000 Quarter in Review 2007 2008 2009 Vacancy Rate (%) 2010 2011 14% Net Absorption (SF) The recovery in the suburban office market hasn’t been as dramatic as it has been in the downtown office market, but the area is still seeing Suburban Direct & Overall Vacancy improving conditions, particularly among class “A” buildings. The vacancy 26.15% rate peaked during the third quarter of 2010 at 23.66% and has since 25.05% 22.16% dropped by 1.5% to 22.16%, the rate recorded at the end of the year. 20.09% During this period nearly 1.8 million SF of vacant space was absorbed 22.11% 21.94% 21.40% 18.99% 19.01% 14.64% 16.30% 13.13% through new leases and tenants expanding into additional space. While the third quarter of the year did see the improvement trend decelerate, I-55 Corridor Direct Vacancy where the rate climbed to 26.15%. The area has had the highest vacancy East-West Corridor O’Hare Area vacancy during the fourth quarter was the Northwest Suburban market, Northwest Suburban by the fourth quarter. The only suburban market to register an increase in North Suburban Overall Suburban as net absorption briefly turned negative, the market was back on track Sublease Vacancy rate of the five suburban office markets for several years, and conditions are still deteriorating. In all markets with positive absorption, only Class Looking Forward “A” buildings, high-quality office buildings with excellent amenities and The suburban office market is expected to top-of-the-line finishes, were the only building class to record positive continue its slow trod towards recovery. While absorption for 2011, as both class “B” and class “C” buildings have the downtown market is in a transition period and been largely bypassed by the recovery, as evidenced by slightly negative landlords are starting to tighten concessions and absorption tallies for the year. The largest new lease signed during the raise rents, such changes still feel a long way off in fourth quarter involved Catalyst Rx leasing 105,460 SF at 1200 Lakeside the suburban office market. Eventually, as hiring Drive in Bannockburn, a big deal for the North Suburban market. Despite picks up and the economy improves, demand will increased activity, especially during the fourth quarter, a shift in the spread to all property types in the market, and the market in favor of landlords over tenants isn’t expected anytime soon. rate of recovery will increase. Significant Suburban Office Lease Transactions 4th Qtr 2011 Property Address Market City Leased (SF) Tenant Comments 1200 Lakeside Dr North Suburban Bannockburn 105,460 Catalyst Rx New lease 9550 W Higgins Rd O’Hare Area Rosemont 114,762 Cole Taylor Bank Lease renewal 2001 York Rd East-West Corridor Oak Brook 164,000 Comcast Corp Lease renewal/expansion 3500 Lacey Rd East-West Cooridor Downers Grove 140,000 HAVI Global Solutions New lease 8770 W Bryn Mawr Ave O’Hare Area Chicago 86,251 Lawson Products, Inc. New lease 3333 Warrenville Rd East-West Corridor Lisle 77,139 Computer Associates International, Inc. New lease Pictured Above: 1200 Lakeside Drive in Bannockburn, where pharmacy benefits manager Catalyst Rx leased 105,460 SF during the fourth quarter NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 9 Chicago West Loop Chicago Midway Airport 171 90 41 94 Oak St. Chicago Ave. # OFFICE BUILDINGS 111 MARKET SIZE (SF) 45,399,037 OVERALL VACANCY 6,559,743 SF (14.45%) Ohio 43 St.12 DIRECT VACANCY 6,123,384 SF (13.49%) 20 SUBLEASE VACANCY 436,359 SF (0.93%) 4Q11 NET ABSORPTION (SF) 310,090 YTD NET ABSORPTION (SF) 1,045,971 UNDER CONSTRUCTION (SF) 0 AVERAGE ASKING RENTAL RATE $29.77 PSF State St. 90 41 12 20 Oak Lawn 90 94 Wacke rD 57 50 83 94 r. Michigan Ave. Wells St. Wacker Dr. Halsted St. Randolph St. Harvey 6 Submarket Trends 290 Vacancy Rate Net Absorption 294 Asking Rents 80 West Loop Overview Vacancy and Absorption 600,000 20% 360,000 17% 120,000 14% -120,000 11% -360,000 8% The last decade’s development cycle in Downtown Chicago transformed the West Loop into the premier office submarket due to its proximity to multiple transportation options. Wacker Drive lies at the heart of -600,000 2007 2008 2009 Vacancy Rate (%) 2010 2011 Net Absorption (SF) Vacancy by Class Type 20% 16.05% 14.47% 15% Vacancy Rate 5% the submarket and has been the corridor of the most significant office developments, including the recently delivered 155 N. Wacker Drive, a towering class “A” facility boasting more than 1.1 million SF of office space. No ongoing construction projects remain in the submarket. Vacancy and Absorption The West Loop vacancy rate peaked at the beginning of 2010 at 9.74% 10% 18.15% and has declined 3.7% since, ending the year at 14.45%. The submarket responded quickly to the economic recession beginning in 5% 2008, when 2.1 million SF of vacant space was added over the course Class C Class B Class A 0% of two years. During the seven quarters since conditions started to improve, nearly 1.7 million SF, about 80%, of that space has been absorbed through increased leasing activity and tenants expanding Market Size by Class Type within buildings. More than one million SF of space was absorbed during 2011 alone, dropping the vacancy rate 2.3% during the year, 8% certainly indicative of an ongoing recovery and active market. This Class A 25% Class B 67% rapid pace of improvement has begun to spread to other downtown markets over recent quarters, adding momentum to the recovery. Class C “More than one million SF of space was absorbed during 2011, dropping the vacancy rate 2.3% over the course of the year.” Pictured Above: 250 S Wacker Drive, purchased by Credit Suisse Asset Management for $90 million during the fourth quarter 6% The asset management unit of Zurich, Switzerland-based Credit Sublease Vacancy (%) Suisse Group AG purchased the 16-story, 244,961 SF class “A” 4% office building located at 250 S Wacker Drive in December. The building, built in 1958 and renovated in 2006, sold for $90 million, or about $367.00 PSF. It was 93% leased at the time of sale, 2% West Loop Overview Sublease Vacancy Rate Transaction Activity with MillerCoors being the largest tenant in the building, leasing 2011 2010 2009 2008 2007 2006 2005 2004 GE Capital, based in Connecticut and the financial services arm 2003 2002 2001 167,256 SF through the end of 2024. 0% Weighted Asking Rents or General Electric Co. expanded their lease by about 63,000 SF $34.00 at 500 W Monroe Street, with an option to lease up to 400,000 SF in total. Along with expanding their footprint and adding jobs, Weighted Asking Rents (Gross $ per SF per year) $32.00 GE Capital renewed their existing lease in the 973,000 SF tower. $30.00 The largest new lease of the fourth quarter involved for-profit $28.00 higher education organization DeVry Inc. leasing 77,000 SF at 2011 2010 2009 and will support DeVry’s extensive online network of classes. 2008 new student services, admissions and financial aid employees 2007 2006 $26.00 Riverside Plaza. The new space will eventually house up to 1,000 Contiguous Block Analysis 100 # of Class “A” Blocks Looking Forward # of Class “B” Blocks 75 The West Loop is in the midst of a robust recovery period that has yet to be witnessed elsewhere in Chicago’s office market. This # of Class “C” Blocks 50 rebound is evidence that the West Loop remains Chicago’s most 25 in-demand office submarket due to its ideal location, excellent 0 Property Name 250 S Wacker Dr 4th Qtr 2011 Size (SF) Sale Price Price PSF Buyer Seller 244,961 $90,000,000 $367.00 AEW Capital Management, LP Credit Suisse Asset Management Significant West Loop Lease Transactions Property Address Property Name 500 W Monroe St 300 S Riverside Plaza Riverside Plaza 600 W Fulton St s Significant West Loop Sale Transactions Property Address ck s to take advantage of current market rents and leasing incentives. ks ck oc lo companies, many sitting on record profits, will continue to look o SF Bl 0+ us 00 uo 0, ig 10 ont C significant adjustments to the vacancy rate remain unlikely, l SF B + us 00 uo ,0 ig 50 ont C SF B + us 00 uo ,0 ig 20 ont C transportation and high quality class “A” product. While sudden, 4th Qtr 2011 Leased (SF) Tenant Comments 371,000 GE Capital Lease renewal/expansion 77,000 DeVry Inc New lease 60,000 Epstein International Lease renewal 300 S Riverside Plaza Riverside Plaza 60,000 National Futures Association Lease renewal/expansion 222 W Adams St Franklin Center 43,160 West Monroe Partners New lease 155 N Wacker Dr 42,303 Savo Group New lease 525 W Monroe St 41,101 LinkedIn Lease renewal/expansion 311 S Wacker Dr 40,000 Attourneys’ Liability Assurance Society Lease renewal NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 11 Chicago Central Loop Chicago Midway Airport 171 84 MARKET SIZE (SF) 39,137,724 OVERALL VACANCY 5,443,342 SF (13.91%) Ohio 43 St.12 DIRECT VACANCY 5,031,399 SF (12.86%) 20 SUBLEASE VACANCY 411,943 SF (1.05%) 4Q11 NET ABSORPTION (SF) 131,065 YTD NET ABSORPTION (SF) 432,243 UNDER CONSTRUCTION (SF) 0 AVERAGE ASKING RENTAL RATE $28.59 PSF State St. 90 41 12 20 Oak Lawn 90 83 94 Wacke rD 57 50 94 r. Michigan Ave. Wells St. Wacker Dr. Halsted St. Randolph St. Harvey 6 Submarket Trends 290 Vacancy Rate Net Absorption 294 Asking Rents 80 Central Loop Overview Vacancy and Absorption 1,000,000 20% 600,000 17% 200,000 14% -200,000 11% -600,000 8% Historically, the Central Loop submarket had been Chicago’s core financial district. While this distinction has faded over the decades, several banks still remain and it has become a central hub for many 2007 2008 2009 Vacancy Rate (%) 2010 2011 Net Absorption (SF) 5% local and national law firms. Chicago’s “El” train serves the submarket well, as the area is surrounded by the trains’ “loop”. Unlike many of the West Loop’s more modern and well-equipped structures, buildings in the Central Loop tend to be older with smaller floor plates and less Vacancy by Class Type in-building parking. 20% Vacancy Rate 15.60% 15% 41 94 Oak St. Chicago Ave. # OFFICE BUILDINGS -1,000,000 90 Vacancy and Absorption 13.43% While conditions improved in the Central Loop during 2011, things 9.21% 10% are changing at a far slower rate than in the neighboring West Loop submarket, where the vacancy rate dropped by more than 2% over Class C Class B Class A 5% the course of the year. During the fourth quarter, 131,065 SF of vacant space was absorbed due to the new leases and existing tenants expanding, bringing the tally for the year to 432,243 SF of absorption. Market Size by Class Type This has pushed the vacancy rate down 110 basis points since the same time last year, recording a year-end vacancy rate of 13.91%. 10% Although the recovery hasn’t been as robust yet in the Central Loop, Class A 50% 40% Class B the area continues to enjoy the lowest vacancy rate of all the downtown submarkets, a sign that while demand has not returned yet in earnest, Class C “Although the recovery hasn’t been as robust in the Central Loop, the area enjoys the lowest vacancy rate of all the downtown submarkets.” Pictured Above: 22 W Washington St, the 439,434 SF building purchased by Prudential Investment Management for $182 million during the fourth quarter Sublease Vacancy Rate 3% 14% and 15% for the better part of the past three years. Sublease Vacancy (%) 2% Transaction Activity The 17-story building located at 22 W Washington Street was 1% purchased by Prudential Real Estate Investors in November for Central Loop Overview the area is historically stable, with a vacancy rate holding between $182 million, or about $414.00 PSF. The 439,434 SF building was 2011 2010 2009 2008 2007 2006 2005 2004 CBS Channel 2 Chicago television affiliate. 2003 the building including the corporate headquarters of Morningstar 2002 2001 fully leased at the time of sale, with the two largest tenants in 0% Weighted Asking Rents Investment bank, brokerage and investment management firm Loop Capital signed the largest new lease of the fourth quarter for about 30,000 SF at 111 W Jackson Boulevard. Expanding by about 9,061 SF at 30 N LaSalle Street, non-profit group International Fellowship of Christians and Jews moved their offices from the building’s 24th and 26th floors to the top floor. $32.00 $30.00 $29.00 $28.00 $27.00 Contiguous Block Analysis 90 # of Class “A” Blocks of positive absorption, resulting in a vacancy rate that has dipped below 14% for the first time in two-and-a-half years. This 2011 2010 2009 Loop submarket has now experienced two consecutive quarters 2008 Looking Forward 2007 2006 $26.00 Following a period of stagnation with little absorption, the Central Weighted Asking Rents (Gross $ per SF per year) $31.00 # of Class “B” Blocks # of Class “C” Blocks 60 improvement trend should continue over the coming quarters as fewer vacancies are brought to the market and increased 30 leasing activity continues. While the area won’t see the rapid 0 Significant Central Loop Sale Transactions ks oc SF Bl 0+ us 00 uo 0, ig 10 ont C ks oc ks oc Central Loop, adding momentum to the improvement trend. l SF B + us 00 uo ,0 ig 50 ont C is experiencing, this activity and demand should spread into the l SF B + us 00 uo ,0 ig 20 ont C pace of absorption that the neighboring West Loop submarket 4th Qtr 2011 Property Address Size (SF) Sale Price Price PSF Buyer Seller 35 W Wacker Dr 1,118,042 $386,965,000* $359.00* UBS Global Asset Management Real Estate Piedmont Office Realty Trust, Inc. 22 W Washington St 439,434 $182,000,000 $414.00 Prudential Investment Management Golub & Company/BlackRock Inc. 55 W Monroe St 803,046 $136,000,000 $169.00 The Hearn Company LaSalle Investment Management Significant Central Loop Lease Transactions 4th Qtr 2011 Property Address Property Name Leased (SF) Tenant Comments 181 W Madison St 181 West Madison 68,221 Quantitative Risk Management Lease renewal 111 W Jackson Blvd 30,000 Loop Capital New lease 30 N LaSalle St 24,881 International Fellowship of Christians and Jews Lease renewal/expansion 79 W Monroe St 24,181 Columbia Insurance Group New lease 24,025 Parillo, Weiss & O’Halloran Lease renewal 19,000 Robbins, Salomon & Patt, Ltd. New lease 77 W Wacker Dr 180 N LaSalle St The United Building *96.5% interest in building NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 13 Chicago East Loop Chicago Midway Airport 171 90 41 94 Oak St. Chicago Ave. # OFFICE BUILDINGS 71 MARKET SIZE (SF) 23,842,356 OVERALL VACANCY 3,748,533 SF (15.72%) Ohio 43 St.12 DIRECT VACANCY 3,405,144 SF (14.28%) 20 SUBLEASE VACANCY 343,389 SF (1.44%) 4Q11 NET ABSORPTION (SF) 236,975 YTD NET ABSORPTION (SF) 809,654 UNDER CONSTRUCTION (SF) 0 AVERAGE ASKING RENTAL RATE $26.25 PSF State St. 90 41 12 20 Oak Lawn 90 83 94 Wacke rD 57 50 94 r. Michigan Ave. Wells St. Wacker Dr. Halsted St. Randolph St. Harvey 6 Submarket Trends 290 Vacancy Rate Net Absorption 294 Asking Rents 80 East Loop Overview Vacancy and Absorption 600,000 25% 400,000 22% 200,000 19% 0 16% -200,000 13% Unlike neighboring submarkets such as the West Loop or Central Loop, the East Loop submarket is far more diverse due to the presence of several universities, not-for-profits, condominium conversions and a 2007 -400,000 2008 2009 Vacancy Rate (%) 2010 2011 Net Absorption (SF) Vacancy by Class Type 15% has benefited from a plethora of condo conversion projects that have rejuvenated the area and its aging buildings. However, since the economic downturn hit, the market for condo conversations has been greatly diminished. The area does not benefit from the easy access to 25% 19.58% 20% 10% growing retail component. Over the past several years, the submarket Vacancy Rate highways or commuter lines that neighboring submarkets enjoy, but it is still within walking distance of the “El” trains, Millennium Park and 14.53% 12.69% close to Lake Shore Drive. 10% Class C The East Loop vacancy rate experienced a significant drop during Class B Vacancy and Absorption 0% Class A 5% 2011, decreasing 3.4% by the end of December when compared to the same period a year ago. The majority of this adjustment occurred Market Size by Class Type during the second quarter of the year, as several substantial lease transactions occurred, including KPMG LLC leasing nearly 260,000 SF in the Aon Center and Groupon leasing 196,000 SF at 303 E Wacker 22% 46% Class A Class B Drive. Several new leases were signed during the fourth quarter as well, leading to 236,975 SF of absorption for the three month period. Class C 32% “The East Loop has been ground zero for several large lease announcements recently, pushing the vacancy rate down 3.4% in a year.” Pictured Above: 111 E Wacker Drive (center), a 1,002,950 SF office tower purchased by CommonWealth REIT for $150.6 million during the fourth quarter 5% The office tower known as One Illinois Center located at 111 Sublease Vacancy (%) E Wacker Drive sold at the end of the year for $150.6 million. 4% The building, more than 1 million SF in size, was purchased 3% by Massachusets-based investor CommonWealth REIT from 2% Parkway Properties, Inc. as collateral for an existing loan. The East Loop Overview Sublease Vacancy Rate Transaction Activity 1% building was about 95% leased at the time of sale. CommonWealth 2011 2010 2009 2008 2007 2006 2005 2004 Michigan Avenue from Parkway Properties, Inc. earlier this year. 2003 2002 2001 REIT also purchased the 1.1 million SF office building at 233 N 0% Weighted Asking Rents Representing the largest office lease transaction of the year, Aon $32.00 Corporation renewed their lease during the quarter for about 400,000 SF in their namesake building known as the Aon Center $30.00 located at 200 E Randolph Street. The company leases space on $28.00 12 floors and houses about 1,700 employees in the space. Weighted Asking Rents (Gross $ per SF per year) $26.00 $24.00 Advertising giant Publicis Worldwide doubled their space at 111 2011 2010 2009 2008 total of 66,000 SF in the 32-story story office tower. A unit of their 2007 2006 $22.00 E Wacker Drive during the fourth quarter, expanding to occupy a Contiguous Block Analysis business, Performics, renewed space on the 15th floor, while their research unit, ZenithOptimedia, leased the 16th floor. 75 # of Class “A” Blocks # of Class “B” Blocks Looking Forward # of Class “C” Blocks 50 The East Loop submarket has been ground zero for several large lease announcements over the last year or so. While few large 25 contiguous spaces remain vacant, leasing activity is expected to 0 Significant East Loop Sale Transactions ks ks oc oc ks oc the area is the right place for companies to expand. SF Bl 0+ us 00 uo 0, ig 10 ont C in the submarket are quickly growing companies, suggesting that l SF B + us 00 uo ,0 ig 50 ont C l SF B + us 00 uo ,0 ig 20 ont C remain elevated over coming quarters. Many of the newer tenants 4th Qtr 2011 Property Address Size (SF) Sale Price Price PSF Buyer Seller 111 E Wacker Dr 1,002,950 $150,600,000 $150.00 CommonWealth REIT Parkway Properties, Inc. 203 N Wabash Ave 137,364 $14,800,000 $108.00 Virgin Hotels UrbanStreet Properties LLC Significant East Loop Lease Transactions 4th Qtr 2011 Property Address Property Name Leased (SF) Tenant Comments 200 E Randolph St Aon Center 400,000 Aon Corporation Lease renewal 111 E Wacker Dr One Illinois Center 66,000 Publicis Worldwide Lease renewal/expansion 200 E Randolph St Aon Center 50,000 UnitedHealthcare New lease 1 N State St One North State Building 46,552 Westwood College New lease 200 S Michigan Ave Borg-Warner Building 40,051 Johnson Publishing Company Inc. New lease 111 E Wacker Dr One Illinois Center 22,323 Discovery Communications Sublease 300 E Randolph St Blue Cross & Blue Shield Building 21,866 Roundarch New lease NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 15 North Michigan Ave. Chicago Chicago Midway Airport 171 90 41 94 Oak St. Chicago Ave. # OFFICE BUILDINGS 62 MARKET SIZE (SF) 13,141,925 OVERALL VACANCY 2,155,893 SF (18.31%) Ohio 43 St.12 DIRECT VACANCY 1,959,899 SF (16.52%) 20 SUBLEASE VACANCY 195,994 SF (1.79%) 4Q11 NET ABSORPTION (SF) 249,997 YTD NET ABSORPTION (SF) 237,139 UNDER CONSTRUCTION (SF) 0 AVERAGE ASKING RENTAL RATE $29.52 PSF State St. 90 41 12 20 Oak Lawn 90 83 94 Wacke rD 57 50 94 r. Michigan Ave. Wells St. Wacker Dr. Halsted St. Randolph St. Harvey 6 Submarket Trends 290 Vacancy Rate Net Absorption Asking Rents 294 80 North Michigan Avenue Overview Vacancy and Absorption 500,000 20% 300,000 17% 100,000 14% -100,000 11% -300,000 8% One of the smallest office submarkets in Chicago’s Central Business District, the North Michigan Avenue submarket is diverse, similar to the East Loop submarket which borders it to the south. A distinguished 2007 -500,000 2008 2009 Vacancy Rate (%) 2010 2011 Net Absorption (SF) Vacancy by Class Type Vacancy Rate 17.53% 15% Avenue is a Chicago icon renowned throughout the world. The office submarket consists of primarily smaller-sized spaces. The submarket is home to Northwestern Memorial Hospital and the future home of Children’s Memorial Hospital. The presence of these large healthcare 25% 20% 5% retail corridor interspersed with posh residential towers, North Michigan 15.19% institutions should benefit the submarket for years to come. 16.93% Vacancy and Absorption 10% The North Michigan Avenue vacancy rate experienced a significant Class C being signed leading to 249,997 SF of absorption. In such a small Class B adjustment during the fourth quarter due to multiple significant leases 0% Class A 5% submarket which typically sees limited transaction activity, this is a significant figure that can cause a sudden adjustment. The overall Market Size by Class Type vacancy rate dropped to 16.4% by then end of December, nearly two percentage points lower than the 18.31% rate recorded at the end 6% of September. The leasing activity during the fourth quarter occurred 47% 47% Class A Class B largely among two class “A” buildings. Class “B” and “C” buildings continue to experience deteriorating conditions in the submarket. Class C “The vacancy rate dropped nearly two percentage points during the fourth quarter due to several significant leases being signed.” Pictured Above: 330 N Wabash Avenue, where the American Medical Association signed a lease for 273,456 SF and SmithBucklin Corp signed a lease for 111,081 during the fourth quarter 4% The Miles van der Rohe-designed building at 330 N Wabash Sublease Vacancy (%) Avenue has struggled since losing previous namesake tenant IBM 3% Corp in 2006 and Jenner & Block LLP in 2009. About half of the 2% building has sat vacant for the past two years, with large blocks of vacant space being marketed to several tenants searching 1% for sizeable spaces, but with limited interest. Finally, two of the 2011 2010 2009 2008 2007 its current home at 401 N Michigan Avenue. A third lease for 2006 SmithBucklin Corp., leasing 111,081 SF in the building, leaving 2005 SF, and the world’s largest association management company, 2004 moving their headquarters to the office tower by leasing 273,456 2003 fourth quarter, including the American Medical Association (AMA) 2002 2001 largest leases of the year were signed at the building during the 0% North Michigan Avenue Overview Sublease Vacancy Rate Transaction Activity Weighted Asking Rents $34.00 Weighted Asking Rents (Gross $ per SF per year) $31.00 about 160,000 SF in the building is currently under negotiations between the landlord and potential tenant Latham & Watkins LLP, a Los Angeles-based law firm. These leases certainly mark $28.00 $25.00 a major milestone for the building which has been plagued by 2011 2010 2009 2008 Looking Forward 2007 2006 $22.00 vacancy concerns for years, and for the submarket overall. Contiguous Block Analysis If Latham & Watkins LLP signs a lease at 330 N Wabash Avenue, 40 # of Class “A” Blocks the vacancy rate will register another significant drop during the first quarter of 2012. With much of the vacant space left behind by the departure of IBM and Jenner & Block LLP absorbed through these recent leases, few large vacant spaces will remain # of Class “B” Blocks 30 # of Class “C” Blocks 20 10 in the submarket. Therefore, vacancy adjustments going forward 0 Size (SF) Sale Price Price PSF ks Property oc Significant North Michigan Avenue Sale Transactions SF Bl 0+ us 00 uo 0, ig 10 ont C ks oc ks oc newer, larger and offer better amenities in a more ideal location. l SF B + us 00 uo ,0 ig 50 ont C submarket when compared to other areas where the buildings are l SF B + us 00 uo ,0 ig 20 ont C will likely be more gradual, as demand is historically lower in the 4th Qtr 2011 Buyer Seller None to report Significant North Michigan Avenue Lease Transactions 4th Qtr 2011 Property Address Property Name Leased (SF) Tenant Comments 330 N Wabash Ave 330 North Wabash 273,456 American Medical Association New lease 330 N Wabash Ave 330 North Wabash 111,081 SmithBucklin Corp. New lease 875 N Michigan Ave John Hancock Center 41,000 SMS Assist Sublease 5,590 Information Technology Partners, Inc. Sublease 541 N Fiarbanks Ct NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 17 Chicago River North Chicago Midway Airport 171 126 MARKET SIZE (SF) 13,530,272 OVERALL VACANCY 1,895,886 SF (14.35%) Ohio 43 St.12 DIRECT VACANCY 1,474,870 SF (10.61%) 20 SUBLEASE VACANCY 421,016 SF (3.75%) 4Q11 NET ABSORPTION (SF) 46,204 YTD NET ABSORPTION (SF) 47,190 UNDER CONSTRUCTION (SF) 0 AVERAGE ASKING RENTAL RATE $28.65 PSF 41 12 20 Oak Lawn 90 83 94 Wacke rD 57 50 94 r. Michigan Ave. Wells St. Wacker Dr. Halsted St. Randolph St. Harvey 6 290 Vacancy Rate Net Absorption 294 Asking Rents 80 River North Overview Vacancy and Absorption 1,200,000 20% 800,000 17% 400,000 14% 0 11% Comprised of predominantly class “C” timber-loft style office buildings, the River North submarket is also home to a few modern glass and steel class “A” office towers. The recent construction in the neighborhood -400,000 8% 2007 2008 2009 Vacancy Rate (%) 2010 2011 Net Absorption (SF) has also been of note, but only one available development site remains at Wolf Point, so major new office developments will be rare. The office submarkets, but offers sensational views along the Chicago River. Vacancy Rate Since the start of the economic recession and through the beginning of 18% 14.06% 5% of high-end residential developments, retail and up-scale restaurants submarket is the least accessible to transportation of all the downtown Vacancy by Class Type 13.11% 15.40% the recovery, the submarket has benefitted from companies looking for lower-cost loft buildings and unique office spaces. 12% 6% Vacancy and Absorption Class C Class B Class A 0% State St. 90 Submarket Trends 24% 41 94 Oak St. Chicago Ave. # OFFICE BUILDINGS -800,000 90 The vacancy rate in the River North submarket experienced little change during the year, a sign that demand remains weak and few transactions have occurred. The year ended with a 14.01% rate, Market Size by Class Type slightly below the 14.36% rate recorded a year ago. Absorption for the year totaled 47,190 SF, with the first and third quarters recording negative net absorption, and the second and final quarter of the year 27% 30% Class A Class B recording positive tallies. This space was absorbed among only class “A” buildings, with both class “B” and “C” building experiencing Class C 43% “Space was absorbed among only class “A” buildings, as class “B” and “C” buildings experienced deteriorating conditions.” Pictured Above: 350 W Mart Center, the two-tower 1,243,000 SF office facility purchased by Shorenstein Properties, LLC for $228 million during the fourth quarter River North Overview Sublease Vacancy Rate deteriorating conditions over the course of the year. Few 4% significant blocks of contiguous space remain available in the Sublease Vacancy (%) submarket, suggesting that adjustments to the vacancy rate will 3% be gradual going foward. 2% Transaction Activity 1% Shorenstein Properties LLC, a San Francisco-based investor, 2011 2010 2009 2008 2007 2006 2005 Center for $228 million. The building was purchased from New 2004 Merchandise Mart that was previously known as the Apparel 2003 2002 2001 purchased the 1.2 million SF office building just west of the 0% Weighted Asking Rents York based real estate investment trust Vornado, who owns the $32.00 Merchandise Mart next door, and was 96% leased at the time of the sale. Weighted Asking Rents (Gross $ per SF per year) $29.00 $26.00 The largest new lease of the fourth quarter involved the Chicagobased law firm Hogan Marren Ltd. leasing 11,704 SF at 321 N $23.00 Clark Street. The firm, who had leased space at 180 N Wacker 2011 2010 2009 2008 2007 2006 $20.00 Drive, is moving to the building to expand their law practice and are looking to stay long-term, signing a 10-year lease. Contiguous Block Analysis 50 Looking Forward 40 The vacancy rate should remain relatively stable over coming 30 quarters, as the River North submarket experiences fewer # of Class “A” Blocks # of Class “B” Blocks # of Class “C” Blocks 20 significant transactions than the larger, more active submarkets 10 in the Loop, and is subject to periods of little activity and relatively 0 4th Qtr 2011 Property Size (SF) Sale Price Price PSF Buyer Seller 350 W Mart Center 1,243,000 $228,000,000 $183.00 Shorenstein Properties, LLC Vornado Realty Trust Significant River North Lease Transactions Property Name 6 W Hubbard St s Significant River North Avenue Sale Transactions Property Address ck s ck lo s ck lo the real estate climate in the area. o SF Bl 0+ us 00 uo 0, ig 10 ont C the area, as demand from the more active submarkets influences SF B + us 00 uo ,0 ig 50 ont C SF B + us 00 uo ,0 ig 20 ont C flat conditions. Over time conditions should gradually improve in 4th Qtr 2011 Leased (SF) Tenant Comments 16,252 Rakoczy Molino Mazzochi Siwik LLP Lease renewal 321 N Clark St 321 N Clark at Riverfront Plaza 11,704 Hogan Marren Ltd. New lease 350 W Hubbard St Kingsbury Center 7,332 Rooney, Rippie & Ratnaswamy, LP New lease 350 W Hubbard St Kingsbury Center 4,924 Tip-Top Branding New lease NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 19 North Suburban 173 41 45 # OFFICE BUILDINGS 524 MARKET SIZE (SF) 29,943,140 OVERALL VACANCY 5,694,154 SF (18.99%) DIRECT VACANCY 4,888,768 SF (16.33%) SUBLEASE VACANCY 805,386 SF (2.69%) 4Q11 NET ABSORPTION (SF) 194,273 YTD NET ABSORPTION (SF) 177,253 UNDER CONSTRUCTION (SF) 425,000 AVERAGE ASKING RENTAL RATE $20.21 PSF Waukegan Regional Airport 83 Gurnee Grayslake Waukegan 120 21 94 176 Libertyville Lake Forest Vernon Hills ake Zurich 60 45 41 22 Highland Park Buffalo Grove Deerfield 21 68 Northbrook Chicago Executive Airport Market Trends Vacancy Rate Net Absorption Asking Rents 90 Arlington Heights 94 Glenview 294 chaumburg 43 Niles Evanston Skokie Ohare Int'l Airport North Suburban Overview Vacancy and Absorption 400,000 25% 200,000 22% 0 19% -200,000 16% -400,000 13% The North Suburban market is diverse in industry, but best known as a headquarters solution to many of Chicagoland’s largest employers. With an unparalleled, qualified workforce, the north suburbs also lay -600,000 2007 2008 2009 Vacancy Rate (%) 2010 Net Absorption (SF) Inventory By City 10% the area’s chief executives and advisors choose to reside. In previous years, the market has fallen victim to large reductions in size from companies such as Motorola and Hewitt & Associates, but historically the market has been better served by its pharmaceutical-related Northbrook 13% staples including Walgreens, Baxter and Abbott Laboratories. Deerfield 8% 43% 7% 7% 5% 5% 6% 2011 claim to Chicago’s popular “North Shore” communities where many of 7% Skokie Evanston Vacancy and Absorption Gurnee Results were mixed in the North Suburban market during 2011. After Glenview Libertyville witnessing eight consecutive quarters of negative net absorption and Buffalo Grove climbing vacancy rates between mid-2008 and mid-2010, conditions Other Suburbs began to improve late last year, as space was absorbed and the vacancy rate responded accordingly. 2011 saw three quarters of Market Size by Class Type positive absorption with only the third quarter reversing that trend, keeping the vacancy rate bouncing around 19%. Absorption for the 10% fourth quarter totaled 194,273 SF, pushing the vacancy rate down 68 Class A 33% 57% Class B basis points to 18.99%, nearly two full percentage points below the 20.71% peak rate recorded during the third quarter of 2010. Class C “The North Suburban market is well-positioned to absorb additional space and already enjoys one of the lowest vacancy rates.” Pictured Above: 2211 Sanders Road in Northbrook, the 195,116 SF building fully leased to CVS Caremark Corp. purchased by Cole Real Estate Investments during the fourth quarter 5% The largest sale transactions of the fourth quarter involved Sublease Vacancy (%) Phoenix-based Cole Real Estate Investment paying about $227 4% PSF for the 195,116 SF class “A” building known as Caremark 3% Tower II in Northbrook. While the building traded for a price 2% lower than the $60 million it garnered in 2007, the strong price 1% is indicative of what fully-leased buildings are selling for in the 2011 2010 2009 2008 2007 2006 2005 2004 12 years left on their lease. 2003 2002 2001 market. The building’s only tenant, CVS Caremark Corp., still has North Suburban Overview Sublease Vacancy Rate Transaction Activity 0% Weighted Asking Rents Northwestern Memorial Hospital purchased the 130,000 SF $22.00 office building located at 2701 Patriot Blvd in Glenview’s Glen Weighted Asking Rents (Gross $ per SF per year) development this December. The hospital plans to use the space $21.00 for doctors offices and additional office space. $20.00 The largest new lease signed during the fourth quarter in the North Suburban market involved pharmacy benefits manager 2011 2010 2009 2008 2007 2006 $19.00 Catalyst Rx leasing 105,460 SF at 1200 Lakeside Drive in Bannockburn. The Maryland-based company recently acquired Contiguous Block Analysis Walgreen’s Health Initiative Inc. pharmacy benefits management business, and will use their new space to absorb the employees 80 # of Class “A” Blocks # of Class “B” Blocks involved in the acquisition. 60 Looking Forward # of Class “C” Blocks 40 The North Suburban market attempted to find its footing during 20 2011, experiencing both positive and negative periods. Looking 0 Significant North Suburban Sale Transactions s ck s ks ck oc lo lowest vacancy rates among the suburban office market. o SF Bl 0+ us 00 uo 0, ig 10 ont C absorb additional space and already experiences one of the SF B + us 00 uo ,0 ig 50 ont C l SF B + us 00 uo ,0 ig 20 ont C towards 2012 and beyond, the market is well-positioned to 4th Qtr 2011 Property Address City Size (SF) Sale Price Price PSF Buyer Seller 2211 Sanders Rd Northbrook 195,116 $44,250,000 $227.00 Cole Real Estate Investments Angelo, Gordon & Co/Fulcrum Asset Advisors 2701 Patriot Blvd Glenview 130,000 $Undisclosed $Undisclosed Northwestern Memorial Hospital OPUS North Corporation 1020 Milwaukee Ave Deerfield 64,858 $2,600,000 $40.00 Marc Realty U.S. Bank Significant North Suburban Lease Transactions 4th Qtr 2011 Property Address City Leased (SF) Tenant Comments 1200 Lakeside Dr Bannockburn 105,460 Catalyst Rx New lease 300 Tri State International Libertyville 64,000 LTD Commodities Lease renewal 475 Half Day Rd Lincolnshire 21,439 TDK Corporation of America Lease renewal 1275 Tri-State Parkway Gurnee 19,585 CNU Online Holdings, LLC New lease 750 Estate Dr Deerfield 18,182 Celergo Lease renewal/expansion 6200 Capitol Dr Wheeling 11,199 National Lewis University Lease renewal Italics denotes NAI Hiffman transaction NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 21 Northwest Suburban # OFFICE BUILDINGS 584 MARKET SIZE (SF) 33,746,831 OVERALL VACANCY 8,825,478 SF (26.15%) 173 45 Fox Lake McHenry DIRECT VACANCY 8,454,371 SF (25.05%) SUBLEASE VACANCY 371,107 SF (1.10%) 4Q11 NET ABSORPTION (SF) -147,997 YTD NET ABSORPTION (SF) 96,347 UNDER CONSTRUCTION (SF) 0 AVERAGE ASKING RENTAL RATE $19.71 PSF 120 Waukegan Regional Airport Gurnee Waukegan 12 94 14 176 Crystal Lake 60 Vernon Hills Lake Zurich 83 Highland Park 22 12 31 14 25 Dundee 68 Palatine 53 Northbrook Chicago Executive Airport 94 72 20 Market Trends Vacancy Rate Net Absorption Asking Rents 294 Arlington Hoffman Heights Estates 90 Elgin 59 Schaumburg 20 Hanover Elk Grove South Elgin Rosemont Park Village Int'lOhare Airport Wood Dale Bloomingdale 290 Dupage Addison Airport 355 E Skoki 90 290 Northwest Suburban Overview Vacancy and Absorption 400,000 30% 200,000 27% 0 24% -200,000 21% -400,000 18% The Northwest Suburban market is highly influenced by activity in the Schaumburg submarket (65% of total market inventory), which includes the municipalities of Schaumburg, Hoffman Estates, Rolling Meadows, 2007 -600,000 2008 2009 Vacancy Rate (%) 2010 2011 Net Absorption (SF) Inventory By City 15% Arlington Heights and Palatine. Companies such as Motorola, AT&T, Sears and Allstate have long been staple tenants in the market, but have produced continual negative absorption to the point that they have now become competitors to other third part owners. The area has been plagued with overall negative absorption and elevated vacancy Schaumburg Arlington Heights 17% rates since 2006, in part due to area mortgage companies giving back space in excess of one million SF. Elgin 34% 14% Hoffman Estates Rolling Meadows Palatine 4% 4% 5% 6% 7% 10% Crystal Lake Mt. Prospect Other Suburbs Vacancy and Absorption The Northwest Suburban vacancy rate peaked at 27% during the third quarter of 2010, and began to improve thereafter, witnessing three consecutive quarters of improvement through the first half of 2011. Since then, the vacancy rate has resumed its climb, as new vacancies Market Size by Class Type have outnumbered new leases, resulting in negative net absorption that pushed the vacancy rate to 26.15% by the end of the year. Net 9% absorption for the fourth quarter totaled negative 147,997 SF, lowering 49% 42% Class A the annual tally to only 96,347 SF, a disappointing figure for such a Class B large market supposedly in a recovery phase. Sears Holding Corp, Class C “The Northwest Suburban market was the only to record negative net absorption and a rising vacancy rate during the fourth quarter.” Pictured Above: 500 Park Blvd and 1 Pierce Pl in Itasca’s Hamilton Lakes Office Park, purchased by Long Wharf Real Estate Partners LLC during the fourth quarter 4% headquarters campus, negotiated a renewal of state and local business incentives that were set to expire in 2012, and 3% has decided to stay put. AT&T is still looking to sublease their 2% 3-building, 1.5-million SF campus in Hoffman Estates with limited to no interest. Should AT&T decide to vacate their headquarters 1% campus, the vacancy left behind would further complicate Sublease Vacancy (%) 2011 2010 2009 2008 2007 2006 2005 2004 Transaction Activity 2003 2002 2001 vacancy concerns in the Northwest Suburban market. 0% Northwest Suburban Overview Sublease Vacancy Rate who was considering leaving their sprawling Hoffman Estates Weighted Asking Rents Two buildings totaling just over one million SF located in Itasca’s $22.00 Hamilton Lakes Office Park were purchased by Boston-based Long Wharf Real Estate Partners LLC, representing the largest Weighted Asking Rents (Gross $ per SF per year) $21.00 sale of the fourth quarter. $20.00 Advocate Physician Partners, a joint venture between the $19.00 Advocate Health Care system and physicians at Advocate 2011 2010 2009 2008 2007 2006 $18.00 hospitals, leased 47,364 SF at Tower II of Continental Towers in Rolling Meadows. The company will be relocating their Contiguous Block Analysis headquarters to the building from Mount Prospect. 150 Looking Forward # of Class “A” Blocks # of Class “B” Blocks 120 Among the suburban office markets, the Northwest Suburban # of Class “C” Blocks 90 market was the only to record negative net absorption and a 60 rising vacancy rate during the fourth quarter. The area continues 30 to struggle with the highest vacancy rate in Chicago’s office 0 Significant Northwest Suburban Sale Transactions ks ks s as an alternative. oc oc ck lo tenants have started to look at the Northwest Suburban market SF Bl 0+ us 00 uo 0, ig 10 ont C buildings has recently tightened in the O’Hare market, and some l SF B + us 00 uo ,0 ig 50 ont C SF B + us 00 uo ,0 ig 20 ont C market. The only positive news is that as the market for class “A” 4th Qtr 2011 Property Address City Size (SF) Sale Price Price PSF Buyer Seller 500 Park Blvd & 1 Pierce Pl Itasca 1,029,351 $73,750,000 $72.00 Long Wharf Real Estate Partners LLC MEPT/New Tower Trust 1 Salem Lake Dr Long Grove 150,000 $3,000,000 $20.00 Asset Recovery Fund I Joint Venture CF Industries Holdings, Inc 3030 W Salt Creek Ln Arlington Heights 100,952 $5,875,406 $58.00 The Blackstone Group Duke Realty Corporation Significant Northwest Suburban Lease Transactions 4th Qtr 2011 Property Address City Leased (SF) Tenant Comments 1701 Golf Rd (Tower II) Rolling Meadows 47,364 Advocate Physician Partners New lease 100 Mittel Rd Wood Dale 37,447 US Cellular New lease 1002 E Algonquin Rd Schaumburg 15,000 Tate & Lyle Lease renewal 915 National Pky Schaumburg 14,261 Aerotek New lease 475 N Martingale Rd Schaumburg 12,562 Global Brass & Copper New Lease 882 S Rohlwing Rd Addison 10,000 PST Sales & Marketing New lease 220-248 Spring Lake Dr Itasca 6,915 Line Drive Unlimited New lease Italics denotes NAI Hiffman transaction NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 23 Northbrook O’Hare Area Chicago Executive Airport # OFFICE BUILDINGS 170 MARKET SIZE (SF) 15,263,637 OVERALL VACANCY 3,375,537 SF (22.11%) DIRECT VACANCY 3,266,472 SF (21.40%) SUBLEASE VACANCY 109,065 SF (0.71%) 4Q11 NET ABSORPTION (SF) 148,000 YTD NET ABSORPTION (SF) 152,506 UNDER CONSTRUCTION (SF) 0 AVERAGE ASKING RENTAL RATE $20.25 PSF 94 Glenview 294 Arlington Heights Des Plaines 12 45 Park Ridge Ohare Int'l Airport Rosemont 72 90 Wood Dale 83 Market Trends 19 290 Vacancy Rate Net Absorption Asking Rents Franklin Park O’Hare Area Overview Vacancy and Absorption 200,000 30% 100,000 27% 0 24% -100,000 21% -200,000 18% Historically not a large tenant market, consolidations have happened more frequently in the O’Hare Area submarket, especially among banking entities including MB Financial Bank, Wintrust Financial 2007 -300,000 2008 2009 Vacancy Rate (%) 2010 2011 Net Absorption (SF) Inventory By City 8% 15% and Banco Popular. These consolidations, often brought about by recent economic factors, have focused on O’Hare for two reasons location and transportation. Geographically, O’Hare sits in the center of the major suburban submarkets providing the “middle ground” for employees coming from disparate locations, not to mention immediate access to the airport for multi-market companies. Additionally, O’Hare 4% 2% Des Plaines 26% Chicago (O’Hare Area) Park Ridge 16% Rosemont is the only submarket providing access to the CTA’s elevated train lines from the city, allowing convenient public transportation for typically younger city-dwelling staff members. Bensenville Schiller Park 26% 18% Franklin Park, Norridge, Harwood Heights Vacancy and Absorption Despite a brief setback during the third quarter, the O’Hare Area market resumed an improvement trend during the fourth quarter with 148,000 Market Size by Class Type SF of space absorbed, pushing the vacancy rate down to 22.11% by the end of December, a rate 137 basis point below a year ago and 6% 41% more than 3.5% below the 25.65% peak recorded at the beginning 53% Class A of 2010. The absorption witnessed in the O’Hare market in 2011 took Class B place among the area’s class “A” properties. Class “B” and class “C” Class C “The majority of vacant space added to the O’Hare market during the downturn has been absorbed over the past two years.” Pictured Above: 6133 N River Road, part of the Riverway office complex, where three buildings were purchased by The Blackstone Group during the fourth quarter as part of a 79-property portfolio sale Sublease Vacancy Rate 6% blocks of space are few and far between in the O’Hare market, Sublease Vacancy (%) causing companies to look at other nearby markets instead. 4% Transaction Activity 2% Five Rosemont properties were sold during the fourth quarter O’Hare Area Overview facilities each recorded negative absorption for the year. Large as part of a portfolio sale purchased by New York-based The 2011 2010 2009 known as Riverway East, Riverway West and Riverway III. 2008 Center, and three buildings in the Riverway office complex 2007 SF in size on Higgins Road known as O’Hare International Office 2006 office facilities consisted of two buildings each about 258,000 2005 in several key markets throughout the country, the Rosemont 2004 office and industrial buildings. While the buildings were located 2003 2002 2001 Blackstone Group from Duke Realty Corporation consisting of 79 0% Weighted Asking Rents $24.00 Weighted Asking Rents (Gross $ per SF per year) $23.00 $22.00 $21.00 The largest new lease signed during the fourth quarter involved Lawson Products, Inc., an industrial distributor of maintenance $19.00 2011 2010 2009 2008 $18.00 2007 2006 and repair supplies, leasing 86,313 SF at 8770 Bryn Mawr $20.00 Avenue in Rosemont’s Triangle Plaza for their new headquarters. With the new lease, the company, who has been headquartered in Des Plaines, will be the largest tenant in the building. Contiguous Block Analysis 50 # of Class “A” Blocks # of Class “B” Blocks 40 Looking Forward # of Class “C” Blocks 30 The O’Hare Area market has come along way since vacancy 20 rates peaked in early 2010, and the majority of the vacant space added to the market during the downturn has been absorbed. 10 0 Significant O’Hare Area Sale Transactions s ck s ks ck o SF Bl 0+ us 00 uo 0, ig 10 ont C lo oc generous over time. SF B + us 00 uo ,0 ig 50 ont C as asking rates increase and market concessions become less l SF B + us 00 uo ,0 ig 20 ont C The vacancy rate will continue to decline over coming quarters 4th Qtr 2011 Property City Size (SF) Sale Price Price PSF Buyer Seller 5 building portfolio Rosemont 1,375,490 $121,100,558 $54.00 The Blackstone Group Duke Realty Corporation Significant O’Hare Area Lease Transactions 4th Qtr 2011 Property Address City Leased (SF) Tenant Comments 9550 W Higgins Rd Rosemont 114,762 Cole Taylor Bank Lease renewal 8770 W Bryn Mawr Ave Chicago 86,251 Lawson Products, Inc. New lease 10275 W Higgins Rd Rosemont 73,753 Advance Transformer Co. Lease renewal/downsize 8700 W Bryn Mawr Rd Chicago 31,455 Fidelity Insurance New lease 8725-8745 W Higgins Rd Chicago 17,086 CH2M Hill, Inc. New lease 8420 W Bryn Mawr Ave Chicago 12,000 HR Plus New lease 8700 W Bryn Mawr Ave Chicago 10,976 eClinicalWorks New lease Italics denotes NAI Hiffman transaction NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 25 Palatine East-West Corridor Elgin 664 MARKET SIZE (SF) 42,710,999 OVERALL VACANCY 9,372,740 SF (21.94%) 31 DIRECT VACANCY 8,120,564 SF (19.01%) SUBLEASE VACANCY 1,252,176 SF (2.93%) 41,480 YTD NET ABSORPTION (SF) 550,943 UNDER CONSTRUCTION (SF) 486,277 AVERAGE ASKING RENTAL RATE $20.16 PSF 294 90 Des Plaines Schaumburg Elk Grove Village Int'lOhare Rosem Airport # OFFICE BUILDINGS 4Q11 NET ABSORPTION (SF) Hoffman Estates Chicago Executive Airport 25 290 64 Dupage Airport St Charles 64 Elmhurst 355 38 Lombard 38 North Aurora Oakbrook 56 Terrace Oak Brook 294 88 53 Aurora 83 Naperville Downers Westmont Grove 34 55 55 30 Market Trends 25 Bolingbrook 31 Vacancy Rate Net Absorption Asking Rents Romeoville 55 355 355 East-West Corridor Overview Vacancy and Absorption 500,000 25% 300,000 23% 100,000 21% -100,000 19% -300,000 17% Largest of the suburban office markets, the East-West Corridor is also diverse in many ways. Split into western and eastern sections by I-355, the western half of the market consists of relatively new product and 2007 -500,000 2008 2009 Vacancy Rate (%) 2010 2011 Net Absorption (SF) 15% the majority of the larger blocks of space. Historically home to large technological users including Alcatel-Lucent and Tellabs, Inc. and other sizeable corporations such as Navistar and BP Amoco, the western half of the market is more prone to sudden changes in vacancy Inventory By City and absorption. The characteristically more stable eastern section is defined by more diverse multi-tenant buildings, smaller blocks of Naperville 14% 31% Oak Brook 12% 9% 5% 6% 6% 8% 9% space, and older product. Lombard Downers Grove Lisle Aurora Oakbrook Terrace Wheaton Other Suburbs Vacancy and Absorption Conditions have been improving in the East-West Corridor for five consecutive quarters. The vacancy rate peaked during the third quarter of 2010 at 23.77% and has since dropped by nearly two full percentage points, ending the year at 21.97%, the lowest rate the market has Market Size by Class Type seen since mid-2009. This improvement trend has been carried by an increase in leasing activity, resulting in significant absorption of some 12% of the vacant space added to the market during the downturn. Nearly 49% 39% Class A 800,000 SF has been absorbed since conditions began to improve, Class B about 60% of the 1.3 million SF of vacant space added to the market. Class C “Increased leasing activity has resulted in the absorption about 60% of the 1.3 million SF of vacant space added to the market.” Pictured Above: 2001 York Road in Oak Brook, where Comcast Corp extended their lease and expanded by an additional 39,000 SF during the fourth quarter 38 6% Five buildings in the East-West Corridor were involved in the Sublease Vacancy (%) 79-property office and industrial portfolio sale purchased by The 4% Blackstone Group from Duke Realty Corporation in December. The three-building Executive Towers West office development 2% on Opus Place in Downers Grove, the 111,659 SF building in Westmont known as the Oakmont Tech Center and a 94,375 SF 2011 2010 2009 2008 2007 2006 2005 2004 sale, which was valued at over one billion dollars. 2003 2002 2001 building in Lisle’s Corporate Lakes office park were all part of the 0% East-West Corridor Overview Sublease Vacancy Rate Transaction Activity Weighted Asking Rents Comcast Corp expanded their footprint by about 39,000 SF in $22.00 the class “A” office building at 2001 York Road in Oak Brook. The building was hit with a foreclosure suit in October, shortly after Weighted Asking Rents (Gross $ per SF per year) $21.00 a loan had come due. With the expansion and lease extension, $20.00 Comcast now leases 164,000 SF in the building. $19.00 The largest new lease signed during the fourth quarter involved 2011 2010 2009 2008 2007 2006 $18.00 HAVI Global Solutions leasing about 140,000 SF in the Esplanade II building at 3500 Lacey Road in Downers Grove. The space had Contiguous Block Analysis been leased by Sara Lee Corp, who plans to move into their new headquarters location in the West Loop by 2013. 120 # of Class “A” Blocks 100 # of Class “B” Blocks Looking Forward 80 The East-West Corridor has historically been one of the most 60 active suburban office markets, and this trend has returned 40 # of Class “C” Blocks 20 over the past five quarters evidenced by several thousand SF 0 the interest and activity in the East-West Corridor will translate ks market to the north, where conditions have yet to turn around. oc s ks ck oc lo to other nearby markets, particularly to the Northwest Suburban SF Bl 0+ us 00 uo 0, ig 10 ont C l SF B + us 00 uo ,0 ig 50 ont C SF B + us 00 uo ,0 ig 20 ont C of absorption and a dropping vacancy rate. Over time, hopefully Significant East-West Corridor Sale Transactions 4th Qtr 2011 Property City Size (SF) Sale Price Price PSF Buyer Seller Executive Towers West (3 bldgs) Downers Grove 653,727 $100,424,049* $154.00* The Blackstone Group Duke Realty Corporation 1200 Warrenville Rd Naperville 329,770 $30,998,500 $94.00 BMO Harris Bank NA Wanxiang America Corp. 600-680 Oakmont Ln Westmont 111,659 $10,199,142* $91.00* The Blackstone Group Duke Realty Corporation 2275 Cabot Dr Lisle 94,375 $14,497,672* $154.00* The Blackstone Group Duke Realty Corporation Significant East-West Corridor Lease Transactions 4th Qtr 2011 Property Address City Leased (SF) Tenant Comments 2001 York Rd Oak Brook 164,000 Comcast Corp Lease renewal/expansion 3500 Lacey Rd Downers Grove 140,000 HAVI Global Solutions New lease 3333 Warrenville Rd Lisle 77,139 Computer Associates International, Inc. New lease 2500-2550 Warrenville Rd Downers Grove 71,000 Sentinel Technologies Lease renewal/expansion 1011 Warrenville Rd Lisle 32,270 Smuckers New lease 3030 Warrenville Rd Lisle 29,000 Hapag Lloyd USA New lease *allocated cost based on entire portfolio sale NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 27 I-55 Corridor 294 # OFFICE BUILDINGS 86 MARKET SIZE (SF) 4,019,255 OVERALL VACANCY 588,457 SF (14.64%) DIRECT VACANCY 527,621 SF (13.13%) SUBLEASE VACANCY 60,836 SF (1.51%) Downers Grove Naperville Burr Ridge 83 355 355 4Q11 NET ABSORPTION (SF) 16,504 YTD NET ABSORPTION (SF) -54,571 UNDER CONSTRUCTION (SF) 0 AVERAGE ASKING RENTAL RATE $20.07 PSF Westmont 53 Darien Bolingbrook 55 Market Trends Romeoville Vacancy Rate Net Absorption Asking Rents I-55 Corridor Overview Vacancy and Absorption 200,000 23% 150,000 20% 100,000 17% 50,000 14% 0 11% 2007 -50,000 2008 2009 Vacancy Rate (%) 2010 2011 Net Absorption (SF) Inventory By City 8% Although small in volume of space, the I-55 Corridor market benefits from convenient access to area expressways and tollways including I-55, I-294 and the recently completed I-355 extension. Drawing from an excellent labor pool, the area is an ideal choice for companies who don’t want to move as far north as Oak Brook, providing a convenient location for their employees living in the southwest suburbs. Growth in the I-55 Corridor market is tied to the rapid growth of Will County. User types are mixed with a large presence of industrial services, catering to the large industrial base in the area and medical services, supporting 8% 5% 28% 12% Burr Ridge Woodridge the area hospitals in La Grange, Hinsdale, and the new Adventist Bolingbrook Hospital. Bolingbrook Willowbrook Darien 14% 18% Countryside Romeoville, Downers Grove 15% Vacancy and Absorption The I-55 Corridor vacancy rate continued to climb through much of 2011, ending the year at 14.64%, up a full percentage point from the rate a year ago. While the annual absorption tally was only negative Market Size by Class Type 54,571 SF, a small number when compared to neighboring markets, the relatively small size of the I-55 Corridor means these types of 16% 17% changes in occupied space can have an appreciable effect on the Class A vacancy rate. While the first three quarters of the year experienced Class B deteriorating conditions, the fourth quarter saw slightly positive Class C 67% “The vacancy rate climbed through 2011, ending the year a full percentage point above the rate recorded a year ago.” Pictured Above: 7155 Janes Ave in Woodridge, where for-profit educator Westwood College of Technology renewed their lease for 29,344 SF during the fourth quarter 8% class “A” buildings, while class “B” and class “C” buildings, more Sublease Vacancy (%) numerous in the area, recorded negative net absorption. 6% Vacancy by Class Type 4% 20% Vacancy Rate 2% I-55 Corridor Overview Sublease Vacancy Rate absorption. This absorption happened among the market’s few 15.93% 2011 2010 2009 2008 2007 2006 0% Weighted Asking Rents 10% $22.00 Class C Class B Class A 5% 2005 11.15% 2004 12.84% 2003 2002 2001 15% Weighted Asking Rents (Gross $ per SF per year) $21.00 $20.00 $19.00 Transaction Activity 2011 2010 2009 2008 2007 2006 $18.00 For-profit higher education program Westwood College renewed the lease for their DuPage Campus at 7155 Janes Ave, where the Contiguous Block Analysis company leases 29,344 SF. The college has campus locations throughout the country and online programs as well. 8 # of Class “A” Blocks # of Class “B” Blocks 6 Looking Forward 4 Not susceptible to large swings in vacancy or net absorption, conditions should remain more or less the same over the coming 2 quarters in the I-55 Corridor. The market remains an affordable 0 Property City 1219-1221 Lakeview Ct Romeoville s Significant I-55 Corridor Sale Transactions ck ks oc ks oc locational advantages. o SF Bl 0+ us 00 uo 0, ig 10 ont C to attract tenants based on value and its transportational and l SF B + us 00 uo ,0 ig 50 ont C l SF B + us 00 uo ,0 ig 20 ont C alternative to parts of the East-West Corridor and will continue 4th Qtr 2011 Size (SF) Sale Price Price PSF Buyer Seller 18,287 $2,525,000 $138.00 Private trust Glen Ellyn LLC Significant I-55 Corridor Lease Transactions 4th Qtr 2011 Property Address City Leased (SF) Tenant Comments 7155 Janes Ave Woodridge 29,344 Westwood College of Technology Lease renewal 540 W Boughton Rd Bolingbrook 10,000 Kiddie Academy New lease 361 S Frontage Rd Burr Ridge 9,422 United Technologies Chemtron Division New lease 900 S Frontage Rd Woodridge 9,000 Cardiovascular Management of Illinois New lease 1219-1221 Lakeview Ct Romeoville 2,195 ARS Surveying New lease 1450 Plainfield Rd Darien 1,800 KMA Worldwide Logistics New lease Italics denotes NAI Hiffman transaction NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 29 Medical Office Review NAI Hiffman Market Review & 2012 Forecast Medical Office Review them to pool resources, streamline operational efficiencies, Healthcare Reform, otherwise known as the Patient Protection more affluent and highly insured patient groups. add specialty practices, build new facilities, and compete for and Affordable Care Act, continues to have an effect on the local and national healthcare real estate industries as hospital Loyola University Health System announced in March that systems and occupiers of medial office space continue to they were merging with Novi, MI based Trinity Health. Loyola take a conservative approach to their real estate needs. issued a statement saying, “In the light of the changing The United States Supreme Court is set to begin hearing healthcare environment and the passage of healthcare arguments on the constitutionality of the bill in March of 2012 reform, it is logical for healthcare providers to consider new and expect to render a decision by June of 2012. approaches to meet the challenges of a reformed system.” Also in March, Loyola opened a $50-millon outpatient facility Here in Chicagoland, across a 11-million square foot in Southwest suburban Burr Ridge which will be staffed inventory of medial office assets, vacancy held at 14% with by 70 full-time physicians and bring together primary care, flat net absorption over the past 12 month period. Speculative rehabilitation, orthopedics, neurology and other specialties. development of medical office buildings was extremely limited, while certain hospital systems did deliver replacement Cadence Health System was created earlier this year by the hospitals and specialty care facilities that had been planned merger of Central DuPage Hospital in Winfield and Geneva- and under construction for the past several years. based Delnor Health System. The merger was driven by a desire to extend their reach in an affluent market and Local Acquisitions, Mergers, & Expansions increase operational efficiencies as mandated by healthcare In the last year, Chicagoland saw an acceleration in hospital reform. Also, in December Delnor Hospital announced plans merger and partnership discussions. As the expected influx for a 38,000 square foot outpatient cancer center to be of newly insured patients arrive in the next several years, constructed on their Geneva campus. This was no doubt a the Patient Protection and Affordable Care Act demands move to compete with other West Suburban hospital systems that hospitals become “centers of excellence” by creating that are constructing or have brought on-line their own cancer efficiencies to lower costs to the patients, while at the same centers including: Edward Hospital in Naperville, Sherman time providing high quality care with fewer costly hospital Hospital in Elgin, DuPage Medical Group in Lisle, University readmissions and mistakes. of Chicago at the new Silver Cross Hospital in New Lenox Due to these mandates, several Chicagoland health systems are being proactive in and Rush-Copley Hospital in Aurora. partnership, merger and/or expansion plans that will allow Pictured Above: The new 14-story, 830,000-square foot Rush University Medical Center was completed during 2011, the first full-service, “green hospital” Medical Office Overview In June, Elmhurst Memorial Healthcare opened the doors of Also in December, Northwestern Memorial Health Care its brand new 866,000 square foot, $450-million replacement began pitching physician practices on committing to hospital. This was followed very shortly by news of their move into their proposed $334-million, 1-million square merger discussions with Northwestern Memorial Health foot outpatient tower in Streeterville. But, at a time when Care. New facilities used to be a sure way for systems to Medicare reimbursement rates are expected to be cut, attract patients and increase revenues, but in the current some doctors are reluctant to commit to a long term new economy and state of the nation’s healthcare industry, lease at what could be a 30% increase in rent over renewing some local systems are having a tough time supporting the their current leases in buildings nearby. weight of the long term debt that these new facilities carry. This can been seen by the increased discussions between Looking Forward other local independent hospital systems with new facilities As we move through 2012, look for continued merger and merging or partnering with larger networks or institutions partnership discussions between local hospitals and larger including Sherman Health System’s discussions with both national health systems or teaching hospitals. We expect Centegra Health System and Advocate Health System, as demand and absorption to remain flat pending the Supreme well as Silver Cross Hospital’s partnership with University Court’s decision on the constitutionality of the Healthcare of Chicago. Bill next summer. Local new development will remain limited to current projects in the pipeline including the opening In September, Alexian Brothers Health System signed a of the 1.25-million square foot Ann & Robert H. Lurie definitive agreement to become a part of St. Louis-based Children’s Hospital of Chicago in June, and other smaller Ascension Health, the largest Catholic health system in the specialty care facilities throughout the Chicagoland area. nation. It was mentioned in a press release that recognizing the challenges facing hospitals around the country and the imminent demands of healthcare reform, Alexian Brothers and its health system’s leadership pursued a strategy to identify a partner in order to continue to successfully serve its communities. In December, Rush University Medical Center opened its new $654-millon hospital tower that is the cornerstone of a planned 10 year transformation of its West side campus along the Eisenhower Expressway. Perkins+Will Architects designed the tower’s unique “butterfly” shaped floor plates after interviewing the hospital’s physicians, nursing staff, and patients to determine the critical features necessary to create the most efficient, safe, and comfortable environment to improve patient outcomes. NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 31 Geneva Beloit 2 Westosha Airport Wisconsin Industrial Submarket Overviews Pleasant Prairie Illinois 1 2 Lake County . . . . . . . . . 36 90 Southeast Wisconsin . . 38 3 I-90/Northwest . . . . . . . 40 4 Northwest Cook . . . . . . 42 kford 5 Rockford North Cook . . . . . . . . . . 44 6 Fox Valley . . . . . . . . . . . 46 7 Central DuPage. . . . . . . 48 Valleyy 8 O’Hare. . . . . . . . . . . . . . 50 9 West Cook . . . . . . . . . . 52 10 Chicago. . . . . . . . . . . . . 54 11 I-88 Corridor . . . . . . . . . 56 Waukegan Regional Airport 1 Crystal Lake C y Cherry 14 helle 15 94 Lake Forest Vernon Hills Lake Zurich Highland Park Buffalo Grove Northbrook Chicago Executive Airport 3 Arlington Heights 4 90 Elgin Schaumburg 12 I-55 Corridor . . . . . . . . . 58 39 13 Waukegan Grayslake 94 294 5 Des Plaines Niles Elk Grove Village Int'lOhare Airport South Cook. . . . . . . . . . 60 Evanston Skokie Wood Dale8 alb DeKalb I-80/Joliet Corridor . . . . 62 Northwest Indiana. . . . . 64 7 Addison 290 Dupage Airport 6 St Charles Carol Stream West Chicago North Aurora 11 9 Elmhurst 94 290 10 Chicago 55 La Grange Downers Grove Burr Bedford Ridge Woodridge Park Willow Springs 88 Naperville Aurora 355 90 Franklin Park Montgomery Bolingbrook 55 12 Chicago Midway Airport 294 Romeoville Plainfield 13 355 90 57 Palos Heights 94 Gary/Chicago Airpo Hammond Tinley Park 14 39 Monee Elwood 57 80 55 Schererville Park Forest Minooka La Salle 80 94 Matteson New Lenox Indiana Joliet Munster 80 Illinois Mokena 15 M Industrial Market Statistics Industrial Market Statistics NAI Hiffman Market Review Winter 2011-2012 Submarket # Bldgs. Total RBA Vacant Vacancy (SF) (SF) Rate (%) 4Q11 NET 2011 YTD Net New Supply Under Constr. Absorption (SF) Absorption(SF) (SF) (SF) Chicago North 1,108 64,205,298 4,952,175 7.7% -72,336 -545,539 0 0 Chicago South 1,702 150,250,489 14,875,973 9.9% -278,390 -831,340 0 0 North Cook 709 45,842,324 2,971,947 6.5% 164,670 487,105 0 0 West Cook 740 60,392,784 6,857,809 11.4% 90,412 360,146 0 0 Southwest Cook 490 39,226,488 3,145,721 8.0% -53,884 -169,748 0 307,000 1,126 85,528,194 9,748,401 11.4% 62,074 211,854 0 267,000 81 13,701,467 2,315,209 16.9% 2,064,540 1,967,938 1,350,000 0 Lake County 931 66,965,523 6,178,157 9.2% 687,013 1,754,510 0 0 Northwest Cook 524 28,431,207 2,394,830 8.4% 82,587 447,764 0 0 O’Hare 1,720 99,976,303 10,769,882 10.8% -10,633 1,326,483 0 0 Central DuPage 1,096 66,974,146 5,231,767 7.8% 1,272,692 1,632,821 0 140,000 I-55 Corridor 655 80,357,318 6,370,097 7.9% -310,793 2,718,457 0 415,000 McHenry County 435 25,395,823 3,148,568 12.4% 58,590 -51,611 0 0 I-90/Northwest 432 25,720,933 2,674,766 10.4% 60,497 152,960 0 0 Fox Valley 495 32,225,276 3,328,755 10.3% 315,712 509,825 147,000 0 I-88 Corridor 771 61,834,957 6,356,231 10.3% 503,378 823,031 0 0 I-80/Joliet Corridor 614 63,388,294 8,415,319 13.3% 38,246 2,067,702 555,292 265,000 57 6,970,869 464,706 6.7% 6,800 190,450 0 0 220 24,153,891 4,628,674 19.2% 72,363 159,563 100,000 140,000 Southeast Wisconsin 523 44,614,814 4,561,139 10.2% 93,304 353,721 0 462,754 432 35,746,307 2,741,668 7.7% -35,305 575,545 0 0 72,520,894 10,766,511 14.8% -142,774 -208,436 0 71,000 16,391 1,194,423,599 122,898,305 10.3% 4,668,763 13,933,201 2,152,292 2,068,254 South Cook I-57/Will Corridor DeKalb County I-39 Corridor Northwest Indiana Flex Space Summary Total Flex Space 1,530 Total Market Summary The data compiled in the Chicago Industrial and Office Market Reviews is the legal property of NAI Hiffman. Reproduction or dissemination of the information contained herein is strictly prohibited without the expressed written consent of NAI Hiffman. This review contains information, including information available to the public, which has been relied upon by NAI Hiffman on the assumption that it is accurate and complete without independent verification by NAI Hiffman. NAI Hiffman accepts no responsibility if this should prove to be inaccurate or incomplete. No warranty or representation, express or implied, is made by NAI Hiffman as to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, and changes in market conditions. NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 33 NAI Hiffman Metropolitan Chicago Market Review & 2012 Forecast # INDUSTRIAL BUILDINGS 16,391 MARKET SIZE (SF) 1,194,423,599 Market Summary VACANCY 122,898,305 SF (10.3%) 4Q11 NET ABSORPTION (SF) 4,668,763 YTD NET ABSORPTION (SF) 13,933,201 NEW SUPPLY (SF) 2,152,292 UNDER CONSTRUCTION (SF) 2,068,254 Vacancy and Absorption 10 MM 15% 5 MM 13% 0 11% -5 MM 9% 2007 -10 MM 2008 2009 Vacancy Rate (%) 2010 2011 7% Net Absorption (SF) Historical Deliveries 30 MM Total Deliveries (SF) 25 MM Average (SF) 20 MM 15 MM 10 MM 5 MM 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 0 MM Source: CoStar Total Sale Transactions and Price PSF $1,000,000+ Transactions 100 MM $70.00 Total SF Sold 80 MM # Total # of Sales Average Price PSF $60.00 60 MM $50.00 40 MM 593 395 825 $40.00 470 403 226 2010 2008 202 2009 2006 2007 2005 2004 2003 2002 2001 2000 0 384 762 286 $30.00 2011 20 MM 409 658 Data: CoStar $20.00 Chicago is the second largest industrial market in the U.S. with nearly 1.2 billion SF of inventory. The Chicago industrial market remains the most influential in the Midwest, due to its growing prominence as an inland port and its diverse, comparatively low-cost labor force. It has the second largest workforce in the country and is the largest manufacturing market. Chicago’s strategic location and transportation infrastructure make it the most important transportation center in the country. Located in the path of three of the nation’s busiest transcontinental expressways (I-80, I-90 and I-94), Chicago also claims 70 percent of the nation’s rail and intermodal activity. The metropolitan area sits at the convergence of all six class-one railways and within a day’s drive of one-third of the country’s population. Year in Review Conditions continued to improve in the Chicago industrial market through 2011, as additional vacant space was absorbed and the vacancy rate dropped each quarter of the year. The market recovery began a year-and-a-half ago, when instead of retrenching or downsizing, which had become so commonplace during the economic recession, companies began to address expansion plans as retail sales picked up, product inventories began to shrink, and industrial production figures increased. New leases, expansions of existing leases and user sales began to outnumber the new vacancies being brought to the market, and net absorption turned positive for the first time since early 2008. These numbers have been encouraging ever since, as the vacancy rate has dropped to 10.3%, about 170 basis points below the peak 12.1% rate recorded in mid-2010, pushed down by more than 18 million SF of absorption. This represents more than 62% of the 29.5 million SF of vacant space introduced to the market during 2009 and much of 2010. The last time Chicago’s industrial market witnessed a 10.3% vacancy rate was three years ago at the end of 2008, when the economic crises was quickly escalating and the real estate market was responding accordingly. The improvement witnessed during 2011 was largely due to a significant Pictured Above: 702 Commerce Center Drive in University Park’s Commerce Center development, leased by Georgia Pacific during the fourth quarter, and lhe largest new industrial lease of 2011 Vacancy Rate Net Absorption Asking Rents increase in leasing activity, of spaces both large and small. The largest new lease of the year involved tissue, packaging and paper manufacturer Georgia Pacific leasing a previously vacant 696,540 SF building in University Park’s Commerce Center development. Several of the area’s historically active submarkets each experienced more than one million SF of absorption during the year, primarily due to this increase in leasing activity. These submarkets include the South Cook, I-57/Will Corridor, O’Hare, Central DuPage, I-55 Corridor and I-80/Joliet Corridor areas. 63,388,294 SF I-88 Corridor 61,834,957 SF West Cook 60,392,784 SF North Cook 45,842,324 SF Southeast Wisconsin 44,614,814 SF Southwest Cook 39,226,488 SF Northwest Indiana 35,746,307 SF Fox Valley 32,225,276 SF Northwest Cook 28,431,207 SF O’Hare 99,976,303 SF I-90/Northwest 25,720,933 SF South Cook 85,528,194 SF McHenry County 25,395,823 SF I-55 Corridor 80,357,318 SF I-39 Corridor 24,153,891 SF I-57/Will Corridor 13,701,467 SF DeKalb County 6,970,869 SF Central DuPage 66,974,146 SF 66,965,523 SF Lake County 2011 Net Absorption (SF) by Submarket 3 MM Chicago North I-39 Corridor I-90/Northwest DeKalb County Southeast Wisconsin South Cook West Cook North Cook Northwest Cook Fox Valley Northwest Indiana I-88 Corridor Central DuPage O’Hare Lake County I-57/Will Corridor -1 MM I-80/Joliet Corridor 0 Chicago South 1 MM Southwest Cook 2011 Total Net Absorption: 13,933,201 SF 2 MM I-55 Corridor Total Industrial Base 1.3 Billion Total Industrial Base (SF) 1.2 Billion 1.1 Billion 1.0 Billion 0.9 Billion 0.8 Billion 0.7 Billion 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 Looking Forward As the brunt of the recession continues to fade from memory, businesses are addressing their previously sidelined longterm expansion plans with renewed confidence. The resiliency of Chicago’s industrial market continues to be demonstrated through elevated demand and transaction activity as the market recovery picks up speed. This has resulted in limited options for distribution companies looking for spaces several thousand SF in size, resulting in the first significant uptick in construction activity since the recession began. While development has been limited to expansions and build-to-suit assignments, such as the new 1.35 million SF facility completed for cleaning products and chemical manufacturer Clorox during the fourth quarter, new speculative construction likely isn’t far off in certain submarkets. I-80/Joliet Corridor McHenry County Sales activity has picked up as well, especially among investment sales, as investment firms with money to spend look to take advantage of depressed prices left behind from the recession. While this activity is nowhere near the historical highs witnessed a few years ago, it has returned to respectable levels well above what was seen in 2009 and much of 2010. Well-leased, core assets are still the favored target among investors, but buildings with substantial vacancy are beginning to trade as well, as the overall market outlook for the near term continues to improve. Suburban Submarkets by Size Industrial Market Summary Industrial Market Trends Significant Industrial Lease Transactions 4th Qtr 2011 Property Address Submarket City Leased (SF) Tenant Comments 702 Commerce Center Dr I-57/Will Corridor University Park 696,540 Georgia Pacific New lease 2780 McDonough St I-80/Joliet Corridor Joliet 476,988 OHL New lease 30120 N Skokie Hwy Lake County North Chicago 397,000 Uline New lease 520 E North Ave Central DuPage Carol Stream 314,574 Angelo Caputo’s Fresh Markets New lease CenterPoint Intermodal Center I-80/Joliet Corridor Elwood 264,600 Resource Mangement Companies Build-to-suit lease 1165 Crossroads Pky I-55 Corridor Romeoville 236,882 Distribution 2000, Inc. New lease Italics denotes NAI Hiffman transaction NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 35 Lake County POPULATION 703,462 2000–2010 POPULATION CHANGE +9.2% # INDUSTRIAL BUILDINGS 931 MARKET SIZE (SF) 66,965,523 VACANCY Wisconsin Illinois 173 6,178,157 SF (9.2%) 4Q11 NET ABSORPTION 687,013 YTD NET ABSORPTION 1,754,510 NEW SUPPLY (SF) 0 UNDER CONSTRUCTION (SF) 0 45 Fox Lake cHenry Waukegan Regional Airport 83 Gurnee Grayslake 12 Waukegan 120 94 North Chicago 21 Libertyville Mundelein 176 Net Absorption Asking Rents 176 60 ake Submarket Trends Vacancy Rate Zion 41 Lake Forest Vernon Hills Lake Zurich 22 12 P l ti 45 41 22 Buffalo Grove Highland Park 294 Lake County Overview Vacancy and Absorption 800,000 14% 400,000 12% 0 10% The Lake County industrial submarket is notable for its roster of -400,000 8% 2007 -800,000 2008 2009 Vacancy Rate (%) 2010 corporate headquarters and heavy concentration of owner-occupied real estate, all located within close proximity to the I-94 Tri-State Tollway. Entrepreneurial owners and corporate managers residing along the lakefront and northwest Lake County make this area attractive for 2011 6% Net Absorption (SF) investment. Corporate neighbors including Abbott, Baxter, Caremark, Takeda, Walgreens and WMS join privately held companies such as Inventory By City CDW, Medline and ULINE to form a vibrant base of employment. Lake County’s relatively low property tax rates attract companies from Cook Waukegan 23% 33% the playing field. Gurnee Buffalo Grove 11% 7% County, although infrastructure demands have begun to slightly even Libertyville 7% 9% Vacancy and Absorption Lake Zurich 10% North Chicago Other Lake County Suburbs An area where changes are typically gradual and trends slow to emerge, the Lake County submarket just experienced a significant adjustment for the second consecutive quarter. Several sizeable new leases and user sales combined to result in 687,013 SF of absorption for the fourth Construction Deliveries 2000-2011 1,200,000 quarter, bringing the tally for the surprise second half of 2011 to nearly 1,000,000 1.5 million SF of vacant space absorbed. This elevated activity has 800,000 pushed the Lake County vacancy rate down to 9.2%, which is 2.4% 600,000 lower than the rate recorded last December. 400,000 200,000 2011 2010 2008 2009 2007 2006 2005 2004 2003 2002 2001 2000 0 “The Lake County vacancy rate has dropped to its lowest level since 2008, when the recession was just getting underway.” Pictured Above: 30120 N Skokie Highway in North Chicago, which was vacated by Uline last year with their move to Wisconsin, was leased again by the packaging company during the fourth quarter Available Space Profile Development activity is at a standstill in Lake County until conditions in the overall industrial market begins return to 1.6 MM 1.1 MM 1,000 – 19,999 SF Available desirable levels. 20,000 – 49,999 SF Available 2.3 MM 1.4 MM 50,000 – 99,999 SF Available Transaction Activity 100,000 – 199,999 SF Available Nearby Northbrook-based ForeFront Properties purchased the Lake County Overview Construction 200,000+ SF Available 2.4 MM 345,232 SF manufacturing building located at 3818 Grandville Avenue in Gurnee for $3,925,000, or about $11.00 PSF, in 120 December. The building, although in good condition at the time of # of Buildings 100 the sale, was vacant. The buyer plans to lease the entire building 80 over the coming years or sell it again. 60 40 The largest lease of the fourth quarter involved Uline leasing the 20 397,000 SF building at 30120 N Skokie Highway in the North 0 e 0+ bl 00 ila 0, va 20 A 9 SF 99 9, 19 – e 0 bl 00 ila 0, va 10 A SF 99 ,9 99 – ble 00 ila ,0 va 50 A SF 99 ,9 49 – ble 00 ila ,0 va 20 F A S 99 ,9 19 ble – 0 ila 00 va 1, F A S Chicago Business Park that they had vacated last year as part of their move to their new 1.2 million SF headquarters in Pleasant Prairie, Wisconsin. The company had left behind roughly 600,000 SF of space in Lake County with the move to Wisconsin. Looking Forward While the Lake County submarket has historically been dominated by user-owner buildings amid large swaths of residential developments, numerous speculative facilities were constructed during the height of the real estate boom. Now that demand has returned to the area, many of these recently constructed facilities are starting to fill up. A lot of entrepreneurial talent lives in the area and owners want to be in close proximity to their homes and employee base, which makes the Lake County submarket ideal for some. Significant Lake County Sale Transactions 4th Qtr. Qtr 2011 3rd 2010 Property Address City Size (SF) Sale Price Price PSF Buyer Seller 3818 Grandville Ave Gurnee 345,232 $3,925,000 $11.00 ForeFront Properties, LLC John Hancock Life Insurance Co 2200 Tempel Dr Libertyville 238,000 $3,500,000 $15.00 MBA Building Supplies Tempel Steel Company 610 Schelter Rd Lincolnshire 98,735 $8,065,000 $82.00 LaSalle investment Management Panattoni Development Company 1731 S Lakeside Dr Waukegan 61,000 $3,500,000 $57.00 Marquette 1731 LLC Age LLC 340 E Main St Lake Zurich 57,541 $1,600,000 $28.00 Morgan Bronze Products Kavo Dental Corporation Significant Lake County Lease Transactions 4th Qtr 2011 Property Address City Leased (SF) Tenant Comments 30120 N Skokie Hwy North Chicago 397,000 Uline New lease 1515 Franklin Blvd Libertyville 193,653 Zeller Plastik Lease renewal 500 Bond St Lincolnshire 70,957 HomeWerks, Inc. New lease 900 Corporate Grove Dr Buffalo Grove 68,943 Baxter Healthcare Corporation Lease renewal 880 Lakeside Dr Gurnee 50,395 Jump America, LLC New lease Italics denotes NAI Hiffman transaction NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 37 Southeast Wisconsin POPULATION 254,027 2000–2010 POPULATION CHANGE +5.1% # INDUSTRIAL BUILDINGS 523 Burlington MARKET SIZE (SF) 44,614,814 83 VACANCY 4,561,139 SF (10.2%) 4Q11 NET ABSORPTION 93,304 YTD NET ABSORPTION 353,721 NEW SUPPLY (SF) 0 UNDER CONSTRUCTION (SF) 462,754 Sturtevant Racine 142 Kenosha Regional Airport Kenosha 31 50 94 32 45 Westosha Airport 41 165 Pleasant Prairie Wisconsin Illinois Zi Submarket Trends Vacancy Rate Net Absorption Asking Rents Southeast Wisconsin Overview Vacancy and Absorption 1,500,000 17% 1,000,000 15% 500,000 13% 0 11% The primary advantages of the Southeast Wisconsin submarket are the availability of affordable land for “big box” development as well as lower utility costs, property taxes and workers’ compensation -500,000 9% 2007 -1,000,000 2008 2009 2010 Vacancy Rate (%) 2011 7% Net Absorption (SF) when compared to submarkets in Illinois. The Lakeview Corporate Park in Pleasant Prairie, Wisconsin accounts for the lion’s share of our statistical tracking in the Southeast Wisconsin industrial submarket. This 1,500-acre business park boasts 25 million SF of industrial space Inventory By City and is home to an international roster of companies including S.C. Johnson, IRIS, Yamaha and Jelly Belly. 6% 16% Racine 34% 17% Pleasant Prairie Vacancy and Absorption Sturtevant The Southeast Wisconsin submarket responded quickly to the economic Kenosha recession in late 2008 and early 2009, when the vacancy rate increased Burlington 27% from 9.2% to over 14% in a matter of only a few months. The area is susceptible to these significant swings in absorption and vacancy due to the large size of many buildings in the submarket’s business parks that cater to distribution and warehousing users. Since the vacancy Construction Deliveries 2000-2011 2,500,000 rate peaked in mid-2009, it has been on the decline. 2010 saw multiple 2,000,000 large leases signed and the completion of several construction projects, 1,500,000 resulting in nearly 5 million SF of absorption. Things have leveled off a bit in 2011, however, with the submarket tallying only 353,721 SF of 1,000,000 500,000 2011 2010 2008 2009 2007 2006 2005 2004 2003 2002 2001 2000 0 “The Southeast Wisconsin vacancy rate has improved by 4% during the past two-and-a-half years due to nearly 5 million SF of absorption.” Pictured Above: 10616 82nd Avenue in Pleasant Prairie, a 82,104 SF building that has sat vacant since it was built in 2008, and was leased by Hospira Worldwide during the fourth quarter Available Space Profile by the end of December, only 80 basis points below the rate a year ago. This year’s limited activity demonstrated that the area 0.3 MM 0.6 MM is subject to periods of inactivity and flat conditions which can 1,000 – 19,999 SF Available 20,000 – 49,999 SF Available 2.4 MM be followed with a several thousand SF swing in absorption the 1.5 MM following quarter due to the large size of many transactions in the submarket. 100,000 – 199,999 SF Available 200,000+ SF Available 1.0 MM Construction 50,000 – 99,999 SF Available 32 # of Buildings Several build-to-suit projects remain under construction, including a new 323,610 SF building for Italy-based Seda International Packaging Corp. that is nearing completion and a Southeast Wisconsin Overview abosorption for the year, and recording a 10.2% vacancy rate 24 16 78,888 SF facility for Racine Metal Fabriaction. 8 Transaction Activity 0 e 0+ bl 00 ila 0, va 20 A 9 SF 99 9, 19 – e 0 bl 00 ila 0, a v 10 A SF 99 ,9 99 – ble 00 ila ,0 va 50 A SF 99 ,9 49 – ble 00 ila ,0 va 20 A SF 99 ,9 19 ble – 0 ila 00 va 1, F A S The most significant transaction of the fourth quarter involved global specialty pharmaceutical and medication delivery company Hospira Worldwide leasing the 82,104 SF building at 10616 82nd Avenue in Pleasant Prairie’s LakeView Corporate Park East. Looking Forward The Southeast Wisconsin vacancy rate has improved by 4% during the past two-and-a-half years. While 2011 saw fewer deals completed in the submarket than 2010, interest in Southeast Wisconsin from companies in Illinois remains elevated due to the location, business incentives and modern product in the area, and additional absorption is expected over coming quarters. Significant Southeast Wisconsin Sale Transactions Property Address City Size (SF) Sale Price 4th Qtr 2011 Price PSF Buyer Seller None to report Significant Southeast Wisconsin Lease Transactions 4th Qtr 2011 Property Address City Leased (SF) Tenant Comments 10616 82nd Ave Pleasant Prairie 82,104 Hospira Worldwide New lease 9900 58th Pl Kenosha 18,888 Bucher Hydraulics Lease renewal NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 39 I-90/Northwest POPULATION 212,832 2000–2010 POPULATION CHANGE +26.4% # INDUSTRIAL BUILDINGS 432 MARKET SIZE (SF) 25,720,933 VACANCY 2,674,766 SF (10.4%) 4Q11 NET ABSORPTION 60,497 YTD NET ABSORPTION 152,960 NEW SUPPLY (SF) 0 UNDER CONSTRUCTION (SF) 0 25 31 Carpentersville Hampshire 90 72 East Dundee 47 20 Elgin Submarket Trends 31 Vacancy Rate Net Absorption Asking Rents South Elgin I-90/Northwest Overview Vacancy and Absorption 400,000 14% 200,000 12% 0 10% The I-90/Northwest industrial submarket is attractive to companies -200,000 8% 2007 -400,000 2008 2009 Vacancy Rate (%) 2010 looking for excellent interstate access, relatively low taxes, potential incentives and a strong labor pool. Most of the industrial inventory base in the submarket is located within minutes of a 4-way intersection with I-90. This serves to make the I-90/Northwest 2011 6% Net Absorption (SF) submarket a good distribution point for companies that are serving the I-90/upper-midwest supply chain. Relatively low taxes are a benefit Inventory By City throughout the submarket and TIF incentives are available in some areas. Additionally, the Elgin area provides an abundant, educated 3% 5% 9% labor pool. Population along and near the Fox River has increased Elgin 7% Carpentersville dramatically over the past decade. More than 76% of the total South Elgin submarket inventory is located in Elgin. East Dundee Dundee, Genoa, Marengo, Hampshire, etc. 76% Vacancy and Absorption The vacancy rate in the I-90/Northwest submarket decreased by 60 basis points during 2011, ending the year at 10.2%, the lowest rate the area has witnessed since the first quarter of 2008, before the economic Construction Deliveries 2000-2011 1,500,000 recession took hold of Chicago’s industrial market. The rate at the end 1,200,000 of the year is 1.5% below the peak rate of 11.7% recorded in mid- 900,000 2010, due to nearly 500,000 SF of vacant space being absorbed during that time, with much of that occurring during the second half of 2010. 600,000 300,000 2011 2010 2008 2009 2007 2006 2005 2004 2003 2002 2001 2000 0 “The I-90/Northwest vacancy rate has returned to pre-recession levels due to nearly 500,000 SF of absorption of the past six quarters.” Pictured Above: 1331 Davis Road in Elgin, purcahsed by Zilber Property Group from Seigle’s Cabinet Center during the fourth quarter, who then leased back space in the 126,252 SF building Available Space Profile Construction in the I-90/Northwest submarket will remain limited to build-to-suit projects and building expansions until more 0.3 MM 0.4 MM 1,000 – 19,999 SF Available vacant space is absorbed and the overall market recovers. 0.7 MM 1.1 MM Transaction Activity 20,000 – 49,999 SF Available 50,000 – 99,999 SF Available 100,000 – 199,999 SF Available Investment firm Zilber Property Group purchased the 126,252 SF 200,000+ SF Available 1.1 MM I-90/Northwest Overview Construction warehouse building at 1331 Davis Road in Elgin during October from home cabinet distributor Seigle Cabinet Center, who 50 # of Buildings then leased space in the building as part of the sale/leaseback transaction. Also leasing space at 1331 Davis Road, hydraulic drive and control technologies provider Bucher Hydraulics leased 40 30 20 42,521 SF in the building which was built in 1980. 10 The 97,600 SF building located at 833-855 Commerce Parkway 0 e 0+ bl 00 ila 0, va 20 A 9 SF 99 9, 19 – e 0 bl 00 ila 0, a v 10 A SF 99 ,9 99 – ble 00 ila ,0 va 50 A SF 99 ,9 49 – ble 00 ila ,0 va 20 A SF 99 ,9 19 ble – 0 ila 00 va 1, F A S was sold for $2.65 million, or about $27.00 at the end of the year. The building was 27% vacant at the time of the sale, which the buyer plans to occupy. Looking Forward Conditions in the I-90/Northwest submarket continue to gradually improve. The area’s vacancy rate, while not as hard hit by the downturn as other submarket’s rates, has returned to prerecession levels. A slowly falling vacancy rate is expected over the coming quarters, as demand from some of the more active neighboring submarkets spreads into the area, and companies look to take advantage of the relatively low taxes, incentives, educated work force and locational advantages of the I-90/ Northwest submarket. Significant I-90/Northwest Sale Transactions 4th Qtr 2011 Property Address City Size (SF) Sale Price Price PSF Buyer Seller 1331 Davis Rd Elgin 126,252 $4,787,623 $38.00 Zilber Property Group Seigle Cabinet Center 833-855 Commerce Pky Carpentersville 97,600 $2,650,000 $27.00 855 Commerce LLC HMP Properties Inc 1370 Gateway Dr Elgin 42,280 $2,600,000 $61.00 ADMO Inc. Knebl Real Estate LLC 1450 N McLean Blvd Elgin 35,150 $1,775,000 $51.00 Wesa Group, LLC The Elgin Company Holdings I, LLC Significant I-90/Northwest Lease Transactions 4th Qtr 2011 Property Address City Leased (SF) Tenant Comments 2580 Technology Dr Elgin 89,052 Ryerson, Inc. Lease renewal 825 Tollgate Rd Elgin 83,166 Hydrox Labs Lease renewal 1331 Davis Rd Elgin 42,521 Bucher Hydraulics New lease 1331 Davis Rd Elgin Seigle Cabinet Center Sale-leaseback 1490 Crispin Dr Elgin Alex Lyon & Sons Auctioneers New lease 40,425 Italics denotes NAI Hiffman transaction NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 41 Northwest Cook POPULATION 524,482 2000–2010 POPULATION CHANGE +1.7% # INDUSTRIAL BUILDINGS 524 MARKET SIZE (SF) 28,431,207 VACANCY 2,271,266 SF (8.4%) 4Q11 NET ABSORPTION 82,587 YTD NET ABSORPTION 447,764 NEW SUPPLY (SF) 0 UNDER CONSTRUCTION (SF) 0 Lake Zurich Buffalo Grove Barrington 68 14 Palatine 59 12 East Dundee 58 Arlington Heights 90 Hoffman Estates Vacancy Rate Net Absorption Asking Rents 294 Mt. Prospect 72 Schaumburg 20 gin Chicago Executive Airport 62 gin Submarket Trends 53 19 Des Plaines 290 Elk Grove Village Streamwood Bartlett Bloomingdale Ohare Int'l Airport Wood Dale 355 Northwest Cook Overview Vacancy and Absorption 750,000 15% 450,000 13% 150,000 11% -150,000 9% -450,000 7% 2007 -750,000 2008 F 2009 Vacancy Rate (%) 2010 2011 5% Net Absorption (SF) The Northwest Cook submarket is a desirable business location for entrepreneurial owners and corporate managers who reside in the area’s suburban communities. The submarket is conveniently located close to Chicago’s O’Hare International Airport and has excellent access to Chicago and the western suburbs using I-90, I-290 and Route 53. The user base generally consists of specialized manufacturing and service companies. Many international companies, particularly Asian and Inventory By City European, have located their North American headquarters here due to the proximity to the airport. Few distribution facilities exist relative 11% 8% Mt. Prospect 35% cramped O’Hare submarket looking for more space or a location closer Palatine 8% 8% 12% to neighboring submarkets. Many users come from the comparatively Schaumburg Barrington to their residences, but don’t want to move all the way west to Elgin Bartlett or beyond. While high Cook County taxes may be prohibitive to some Rolling Meadows 19% users, landlords continue to offer lower net rents to attract tenants. Hoffman Estates, Streamwood, etc. Vacancy and Absorption The Northwest Cook vacancy rate has been improving for more than Construction Deliveries 2000-2011 1,000,000 two years, decreasing an impressive 5.4% since it peaked at 13.8% 800,000 during the third quarter of 2009. At the end of the year, the vacancy rate 600,000 had dropped to 8.4%, the lowest rate the submarket has seen in several years. Net absorption has been positive for nine consecutive quarters, 400,000 200,000 2011 2010 2008 2009 2007 2006 2005 2004 2003 2002 2001 2000 0 “The Northwest Cook submarket has witnessed one of the quickest recoveries of all the submarkets and now boasts one of the lowest vacancy rates.” Pictured Above: 1400 Algonquin Road in Mt. Prospect, where JAS Forwarding Worldwide leased 78,700 SF during the fourth quarter kli Available Space Profile 2011 to 447,764 SF. This has largely been due to an increase in transaction activity and fewer vacancies being introduced to the 0.3 MM market as companies are no longer retrenching and downsizing, 0.6 MM 1,000 – 19,999 SF Available 0.8 MM 20,000 – 49,999 SF Available but beginning to address their expansion needs. 50,000 – 99,999 SF Available 1.0 MM Construction 100,000 – 199,999 SF Available 200,000+ SF Available 0.9 MM Northwest Cook Overview totaling 82,587 SF for the fourth quarter, bringing the tally for Largely a developed “infill market”, the majority of construction projects are building additions. 75 # of Buildings 60 Transaction Activity The Christian Pentecostal Church purchased the 20,000 SF 45 industrial showroom building located at 727 E Algonquin Road in 30 Schaumburg in October for about $58.00 PSF. The buyer plans 15 to convert the property into a church. 0 e 0+ bl 00 ila 0, va 20 A 9 SF 99 9, 19 – e 0 bl 00 ila 0, a v 10 A SF 99 ,9 99 – ble 00 ila ,0 va 50 A SF 99 ,9 49 – ble 00 ila ,0 va 20 A SF 99 ,9 19 ble – 0 ila 00 va 1, F A S Global freight forwarder and logistics provider JAS Forwarding Worldwide leased 78,700 SF at 1400 Algonquin Road in Mt. Prospect, a 237,350 SF industrial warehouse building in the Briarwood Business Center. Looking Forward The Northwest Cook submarket has witnessed one of the quickest recoveries and now boasts one of the lowest vacancy rates of all of the submarkets in the Chicago Industrial Market. Vacancy should remain low over the coming quarters as companies look to expand their operations and few new vacancies are introduced to the market. Significant Northwest Cook Sale Transactions 4th Qtr 2011 Property Address City Size (SF) Sale Price Price PSF Buyer Seller 727 E Algonquin Rd Schaumburg 20,000 $1,150,000 $58.00 Christian Pentecostal Church Sears Holdings Significant Northwest Cook Lease Transactions 4th Qtr 2011 Property Address City Leased (SF) Tenant Comments 1000 E Business Center Dr Mount Prospect 110,086 Cyber Development New lease 1400 Algonquin Rd Mount Prospect 78,700 JAS Forwarding Worldwide New lease 3121 Tollview Dr Rolling Meadows 22,644 Goodman Distribution, Inc. New lease NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 43 North Cook POPULATION 414,171 2000–2010 POPULATION CHANGE +1.7% # INDUSTRIAL BUILDINGS 709 MARKET SIZE (SF) 45,842,324 VACANCY 2,941,153 SF (6.5%) 4Q11 NET ABSORPTION 164,670 YTD NET ABSORPTION 487,105 NEW SUPPLY (SF) 0 UNDER CONSTRUCTION (SF) 0 Grove Wheeling 21 ago Executive Airport 294 43 n s 58 Des Plaines Submarket Trends Net Absorption Asking Rents 500,000 10% 300,000 8% 100,000 6% -100,000 4% -300,000 2% 2007 2008 14 Evanston 41 Niles Skokie Lincolnwood 90 Chicago North Cook Overview Vacancy and Absorption -500,000 Ohare Int'l Airport 94 Morton Grove Park Ridge e Vacancy Rate Glencoe 68 Northbrook 2009 Vacancy Rate (%) 2010 2011 0% Net Absorption (SF) Desirable for users seeking quick access to Chicago, major area expressways, and the northern suburbs, the North Cook Submarket is also attractive to long-term Chicago-based users looking to stay close to the city while escaping Chicago congestion. The area has the advantage of an inventory of buildings with better specifications than many of the antiquated buildings found in the city of Chicago. It tends to be a primarily owner/user market, with limited leasing Inventory By City opportunities. The user base generally consists of service providers and light manufacturers who tend to remain in their locations for 14% 28% 8% Wheeling extended periods of time, resulting in limited transaction velocity in the Niles submarket. The inventory base is mostly comprised of 1960s–1970s- Skokie era buildings with lower ceilings and low parking ratios. Higher taxes Northbrook 13% 20% 17% Morton Grove may be a deterrent for some users, while others are willing to pay the Evanston, Glenview, Lincolnwood, Northfield, etc. price for the location. Vacancy and Absorption Construction Deliveries 2000-2011 Each quarter of 2011 witnessed improving conditions in the North 600,000 Cook submarket, which up until the start of the year had been plagued by nine consecutive quarters of negative net absorption and a climbing 400,000 vacancy rate. By the end of the year, this rate had declined 1.4% when compared to the rate a year ago. The 6.5% vacancy rate recorded at the 200,000 2011 2010 2008 2009 2007 2006 2005 2004 2003 2002 2001 2000 0 “Conditions improved in the North Cook submarket through 2011, resulting in the lowest vacancy rate experienced since mid-2009.” Pictured Above: 7520 Long Avenue in Skokie, the former home of WH Salisbury & Co, purchased by neighbor Command Transportation LLC during the fourth quarter Available Space Profile mid-2009, when the negative effects from the economic recession were really starting to take hold on the area. Net absorption for 0.8 MM the fourth quarter totaled 164,670 due to recent transactional 1,000 – 19,999 SF Available 1.7 MM 20,000 – 49,999 SF Available activity and tenants taking occupancy of their recently leased 50,000 – 99,999 SF Available 1.3 MM space, bringing the annual tally to 487,105 SF of absorption. 100,000 – 199,999 SF Available North Cook Overview end of December is the lowest rate the submarket has seen since 200,000+ SF Available 1.1 MM Construction The North Cook submarket has experienced very little new 100 # of Buildings development in recent years due to its status as a mature market. 80 Transaction Activity 60 International logistics and brokerage company Command 40 Transportation LLC purchased the 44,118 SF industrial building 20 on 1.84 acres of land for the land value of the property, with plans 0 e 0+ bl 00 ila 0, va 20 A 9 SF 99 9, 19 – e 0 bl 00 ila 0, va 10 A SF 99 ,9 99 – ble 00 ila ,0 va 50 A SF 99 ,9 49 – ble 00 ila ,0 va 20 F A S 99 ,9 19 ble – 0 ila 00 va 1, F A S to demolish the existing building. The company is headquartered next door and recently built an expansion on their building and plans to use the recently acquired property as a parking lot to accommodate employees in their current facility. Looking Forward Over the past year, the North Cook submarket has seen more than a quarter of the vacant space added to the market during the following the economic downturn absorbed through new leases, expansions and user sales. While there is still a long way to go until conditions return to pre-recession levels, the area has certainly witnessed a turnaround and currently boasts one of the lowest vacancy rates in the Chicago industrial market. Significant North Cook Sale Transactions 4th Qtr 2011 Property Address City Size (SF) Sale Price Price PSF Buyer Seller 7520 Long Ave Skokie 44,118 $1,850,000 $42.00 Command Transportation LLC Sitex Realty Group, LLC 420 Northgate Pky Wheeling 46,863 $1,850,000 $39.00 Martin Lahart Private Trust Significant North Cook Lease Transactions 4th Qtr 2011 Property Address City Leased (SF) Tenant Comments 730-770 S Wolf Rd Wheeling 112,500 Segerdahl Corp New lease 7001 Central Park Ave Lincolnwood 42,489 TenFab Lease renewal 8220 N Austin Ave Morton Grove 39,159 Fear City New lease 7101-7111 N Capitol Dr Lincolnwood 35,000 STI Moving & Storage New lease 7400-7410 Niles Center Rd Skokie 8,500 Suiscio New lease 3131-3141 MacArthur Blvd Northbrook 8,435 Restruction General Contractors New lease Italics denotes NAI Hiffman transaction NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 45 Fox Valley POPULATION 111,686 2000–2010 POPULATION CHANGE +14.1% # INDUSTRIAL BUILDINGS 495 MARKET SIZE (SF) 32,225,276 VACANCY 3,242,932 SF (10.3%) 4Q11 NET ABSORPTION 315,712 YTD NET ABSORPTION 509,825 NEW SUPPLY (SF) 147,000 UNDER CONSTRUCTION (SF) 0 Elgin Streamwoo South Elgin 25 31 64 Dupage 47 38 St Charles Airport Geneva 59 64 West Chicago Ca 38 Batavia Submarket Trends Vacancy Rate Net Absorption Asking Rents 600,000 15% 300,000 13% 0 11% -300,000 9% -600,000 7% 2007 2008 Sugar Grove 30 88 Aurora Naperville Fox Valley Overview Vacancy and Absorption -900,000 North Aurora 2009 Vacancy Rate (%) 2010 2011 5% Net Absorption (SF) The Fox Valley submarket lies between the I-90/Northwest submarket to the north and the I-88 Corridor submarket to the south and has limited access to major expressways. It is primarily an owner/user market with leasing opportunities in the small to mid-size range. The user base generally consists of manufacturing companies that serve the area within close proximity to users’ homes. Much of the inventory is composed of mid-1980s buildings in contrast to the modern “big- Inventory By City box” distribution warehouses of neighboring submarkets. Many users choose to be in the Fox Valley submarket due to need and remain in the submarket long-term, resulting in limited transaction velocity. 11% West Chicago 35% St. Charles 26% Vacancy and Absorption Batavia For the second quarter in a row, strong absorption caused by several Geneva 28% new leases and tenants taking occupancy of recently-leased space pushed the Fox Valley vacancy rate lower, ending the year at 10.3%, a figure 1.7% below the 12% rate recorded a year ago. Net absorption for the fourth quarter totaled 315,712 SF due to increased leasing Construction Deliveries 2000-2011 1,500,000 activity and a new 147,000 SF building being delivered to the market. 1,200,000 The flurry of activity witnessed during the fourth quarter brings the tally 900,000 for the year to 509,825 SF of absorption. The past two quarters have 600,000 300,000 2011 2010 2008 2009 2007 2006 2005 2004 2003 2002 2001 2000 0 “The past two quarters have been very active in the Fox Valley, with significant absorption pushing the vacancy rate down 1.6% in six months.” Pictured Above: 1800 Averill Road in Geneva, a 243,000 SF building that was part of the nine-property portfolio purchased by Duke Realty Corporation during the fourth quarter to own their own buildings and stick around long-term. 0.5 MM Construction 0.6 MM 1,000 – 19,999 SF Available 20,000 – 49,999 SF Available Construction was completed on a new 147,000 SF build-to-suit 0.7 MM 50,000 – 99,999 SF Available 0.8 MM Community Nutrition and Food Distribution Center for Northern Food Bank during the fourth quarter, doubling the size of its Fox Valley Overview Available Space Profile been particularly active for a submarket where companies tend 100,000 – 199,999 SF Available 200,000+ SF Available 0.7 MM former headquarter in St. Charles. Otherwise, no development projects are underway in the submarket. 60 Transaction Activity # of Buildings 40 Duke Realty Corporation’s Chicago office acquired a ninebuilding portfolio of industrial buildings during the fourth quarter, 20 two of which are located in the Fox Valley submarket. The 243,000 SF warehouse building at 1800 Averill Road in Geneva and the 0 e 0+ bl 00 ila 0, va 20 A 9 SF 99 9, 19 – e 0 bl 00 ila 0, a v 10 A SF 99 ,9 99 – ble 00 ila ,0 va 50 A SF 99 ,9 49 – ble 00 ila ,0 va 20 A SF 99 ,9 19 ble – 0 ila 00 va 1, F A S 150,000 SF building at 1250 Carolina Drive in West Chicago were purchased by Duke Realty from TA Associates Realty. Both buildings are 100% leased to long-term tenants. Looking Forward The elevated transaction activity and significant absorption witnessed during the past two quarters is uncommon for this smaller submarket where velocity tends to be lower due to owners and tenants historically residing in the area long-term, but it is a promising sign that demand has returned. While the rate of improvement seen over recent months is unlikely to be sustained, the vacancy rate will continue to decrease over the coming year and beyond. Significant Fox Valley Sale Transactions 4th Qtr 2011 Property Address City Size (SF) Sale Price Price PSF Buyer Seller 1800 Averill Rd Geneva 243,000 $16,198,500 $67.00 Duke Realty Corporation TA Associates Realty 1250 Carolina Dr West Chicago 150,000 $6,300,000 $42.00 Duke Realty Corporation TA Associates Realty 3940-3950 Stern Ave St. Charles 147,628 $4,631,500 $31.00 Venture One Real Estate LLC Colony, Inc. 741 Winston St West Chicago 39,584 $2,000,000 $51.00 James Jett David Freidman Significant Fox Valley Lease Transactions 4th Qtr 2011 Property Address City Leased (SF) Tenant Comments 900 Douglas Rd Batavia 76,638 AccelColor New lease 1645 Downs Dr West Chicago 73,935 Constar New lease 3575 Stern Ave St. Charles 22,000 Signature Homestyles New lease 1540 Louis Bork Dr Batavia 17,463 Green Ladder Technologies New lease NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 47 Central DuPage POPULATION 392,229 2000–2010 POPULATION CHANGE +0.7% # INDUSTRIAL BUILDINGS 1,096 MARKET SIZE (SF) 66,947,146 VACANCY 5,023,444 SF (7.8%) 4Q11 NET ABSORPTION 1,272,692 YTD NET ABSORPTION 1,632,821 NEW SUPPLY (SF) 0 UNDER CONSTRUCTION (SF) 140,000 Schaumburg Elk Grove Village 5353 Ohare Int'l Airport 19 20 Bloomingdale 290 294 Glendale Heights Addison Elmhurst 64 Carol Stream Submarket Trends 355 est Chicago Vacancy Rate Net Absorption Asking Rents 83 Glen Ellyn Lombard 88 Central DuPage Overview Vacancy and Absorption 1,500,000 12% 1,000,000 10% 500,000 8% 0 6% -500,000 4% The well-positioned Central DuPage industrial submarket benefits from advantages including relatively low taxes, newer building inventory and an educated workforce. The recent completion of the I-355 extension, 2007 -1,000,000 2008 2009 Vacancy Rate (%) 2010 2011 2% Net Absorption (SF) Chicago’s newest expressway, has improved access to the area and spurred interest in the mature market. Users in the Central DuPage submarket vary by type and are not limited to primarily distribution like other nearby submarkets. Inventory By City Vacancy and Absorption 18% 27% Addison Several significant new leases, combined with owner-user sales of Carol Stream previously vacant buildings and tenants assuming occupancy of 7% Glendale Heights 9% Elmhurst 10% 29% recently leased space, resulted in an astounding nearly 1.3 million SF Hanover Park of absorption during the fourth quarter. This release of pent-up demand Bloomingdale, Lombard, Roselle, Villa Park, Wheaton pushed the vacancy rate down nearly two full percentage points during the three month period, the largest adjustment the submarket has seen in several years. By the end of the year, this rate stood at 7.8%, the lowest it has been in five years and 2.7% below the 10.5% peak Construction Deliveries 2000-2011 recorded two years ago. 2,500,000 2,000,000 Construction 1,500,000 One of the first speculative construction projects since the economic 1,000,000 500,000 2011 2010 2008 2009 2007 2006 2005 2004 2003 2002 2001 2000 0 “Nearly 1.3 million SF of vacant space was absorbed in the fourth quarter, the largest adjustment seen in several years.” Pictured Above: The façade of the Domtar Paper Company’s 453,361 SF facility at 350 S Rohlwing Road in Addison, where they renewed their lease during the fourth quarter W Turnberry Lakes Business Park. The 140,000 SF building is expected to be completed during the first quarter of 2012. 2.1 MM 1.0 MM 1,000 – 19,999 SF Available 20,000 – 49,999 SF Available 1.9 MM Transaction Activity Several Carol Stream industrial buildings were purchased as part 50,000 – 99,999 SF Available 100,000 – 199,999 SF Available 1.5 MM of multi-property portfolios during the fourth quarter. Duke Realty 200,000+ SF Available 2.1 MM Central DuPage Overview Available Space Profile downturn is under construction at 301 Gary Avenue in Roselle’s Corporation, looking to expand their investment in industrial assets, purchased the 360,684 SF manufacturing building at 120 720-780 Center Avenue and the 75,538 SF warehouse building # of Buildings 100 at 189-199 Easy Street, both in Carol Stream. AEW Capital 80 Management, based in Boston, purchased three warehouse 60 buildings on Carol Court in Carol Stream’s Carol Point Business 40 Center totaling 427,192 SF for $22.35 million. 20 0 e 0+ bl 00 ila 0, va 20 A 9 SF 99 9, 19 – e 0 bl 00 ila 0, va 10 A SF 99 ,9 99 – ble 00 ila ,0 va 50 A SF 99 ,9 49 – ble 00 ila ,0 va 20 F A S 99 ,9 19 ble – 0 ila 00 va 1, F A S The two largest leases of the quarter were renewals, with paper manufacturer Domtar Paper Company LLC renewing their lease for 453,361 SF at 350 S Rohlwing Road in Addison and Office Depot extending their lease and expanding by 128,576 SF to occupy the entire 385,344 SF building at 515-585 Kehoe Boulevard in Carol Stream. Several new leases were signed during the quarter, including Navistar leasing the 248,748 SF distribution building at 1000 N County Line Road in Elmhurst. Looking Forward The coming quarters will dictate whether the Central DuPage submarket will witness another period of significant transaction activity and adjustments to the vacancy rate. The vacancy rate at the end of the year was similar to the rate in late-2006, suggesting the submarket has recovered from the effects of the recession. Significant Central DuPage Sale Transactions 4th Qtr 2011 Property Address City Size (SF) Sale Price Price PSF Buyer Seller 2 property portfolio Carol Stream 436,222 $32,000,000 $73.00 Duke Realty Corporation Bristol Group, Inc. 3 property portfolio Carol Stream 427,192 $22,350,000 $52.00 AEW Capital Management, LP LaSalle Investment Management 401 S Rohlwing Rd Addison 240,000 $5,250,000 $22.00 Porter Pipe & Supply Co. Ingersoll-Rand Company 395 Mission St Carol Stream 170,219 $6,708,331 $39.00 C&C Power RR Donnelley & Sons Company Significant Central DuPage Lease Transactions 4th Qtr 2011 Property Address City Leased (SF) Tenant Comments 350 S Rohlwing Rd Addison 453,361 Domtar Paper Company LLC Lease renewal 515-585 Kehoe Blvd Carol Stream 385,344 Office Depot Lease renewal/expansion 520 E North Ave Carol Stream 314,574 Angelo Caputo’s Fresh Markets New lease 1000 N County Line Rd Elmhurst 248,748 Navistar New lease 135-195 E Elk Trail Carol Stream 224,831 The Pampered Chef New lease 882-898 Carol Ct Carol Stream 135,508 Ingram Micro, Inc. Sublease Italics denotes NAI Hiffman transaction NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 49 O’Hare POPULATION 136,169 2000–2010 POPULATION CHANGE -2.9% # INDUSTRIAL BUILDINGS 1,720 MARKET SIZE (SF) 99,976,303 VACANCY 10,137,053 SF (10.8%) 4Q11 NET ABSORPTION -10,633 YTD NET ABSORPTION 1,326,483 NEW SUPPLY (SF) 0 UNDER CONSTRUCTION (SF) 0 Morto Grov Heights 90 mburg Des Plaines 72 Elk Grove Village Itasca N 45 Park Ridge Ohare Int'l Airport 83 Wood Dale ngdale Submarket Trends 290 Vacancy Rate Net Absorption Asking Rents Bensenville 355 dale ghts 19 294 Franklin Park Addison Elmhurst Melrose O’Hare Overview Vacancy and Absorption 2,000,000 15% 1,200,000 13% 400,000 11% The O’Hare submarket is unique due to its close proximity to O’Hare International Airport and its central location at the crossroads of Chicago’s expressway system. The O’Hare submarket holds the most -400,000 9% -1,200,000 7% 2007 -2,000,000 2008 2009 2010 Vacancy Rate (%) 2011 5% Net Absorption (SF) industrial inventory of all of the Chicagoland submarkets. Elk Grove Village alone is the nation’s largest industrial park, boasting more than 40 million SF of industrial and flex space. Many of the buildings in the submarket are older and functionally obsolete. Redevelopment and Inventory By City construction has slowed dramatically since the economic downturn took hold in 2008. 9% 1% Elk Grove Village Des Plaines 11% 42% Vacancy and Absorption Bensenville The O’Hare vacancy rate has decreased by two percentage points since Itasca 18% 18% Wood Dale its peak a year-and-a-half ago at 12.8%, ending the year at 10.8%. Rosemont This rate hasn’t been this low since late 2008, when the economic downturn was gaining steam and the industrial real estate market was responding. Net absorption for the fourth quarter was negligible at negative 10,633 SF, suggesting that demand was weaker than recent Construction Deliveries 2000-2011 quarters and new vacancies offset leases signed during the quarter. 1,200,000 However, the absorption tally for 2011 totals more than 1.3 million SF, a 900,000 sign that demand has returned to the submarket in earnest. 600,000 300,000 2011 2010 2008 2009 2007 2006 2005 2004 2003 2002 2001 2000 0 “Vacancy in the O’Hare submarket has decreased by 2% in the past year-and-a-half with steady improvement expected over the coming year.” Pictured Above: 2201 Arthur Avenue in Elk Grove Village, sold by Runge Paper Co. to DCT Industrial for $4.7 million, then leased back by Runge Paper Co. during the fourth quarter Available Space Profile New construction activity has been non-existent since 2009, as developers quickly responded to the dire economic outlook and 2.2 MM 2.0 MM 1,000 – 19,999 SF Available a struggling real estate climate. This trend should continue until the vacancy rate returns to historically low levels, asking rents increase, and development begins in other submarkets. 3.5 MM 4.9 MM 20,000 – 49,999 SF Available O’Hare Overview Construction 50,000 – 99,999 SF Available 100,000 – 199,999 SF Available 4.2 MM 200,000+ SF Available Transaction Activity DCT Industrial Trust, a Denver-based industrial REIT, purchased 250 # of Buildings the 107,350 SF distribution building located at 2201 Arthur Avenue in Elk Grove Village as part of a sale/leaseback transaction. Runge Paper Co., who has been in the building 200 150 for many years, sold the building for $4.7 million in December, 100 leasing it back for their paper goods distribution operation. 50 0 e 0+ bl 00 ila 0, va 20 A 9 SF 99 9, 19 – e 0 bl 00 ila 0, va 10 A SF 99 ,9 99 – ble 00 ila ,0 va 50 A SF 99 ,9 49 – ble 00 ila ,0 va 20 F A S 99 ,9 19 ble – 0 ila 00 va 1, F A S The largest new lease of the fourth quarter involved transportation, logistics and e-business technology solution provider CTL Global, Inc. leasing 133,954 SF at 560-590 Supreme Drive in the Bensenville Industrial Park. The company is moving their operation from their former location in Northlake. Looking Forward Freight tonnage at O’Hare International Airport and Midwest manufacturing output as tracked by the Federal Reserve Bank of Chicago are two of the leading indicators that anticipate demand in the O’Hare market. While both of these indicators have improved significantly since their lows in 2009, neither indicates substantial growth in the near future. Conditions in the O’Hare market will likely follow these indicators, with gradual, steady improvement expected. Significant O’Hare Sale Transactions 4th Qtr 2011 Property Address City Size (SF) Sale Price Price PSF Buyer Seller 2201 Arthur Ave Elk Grove Village 107,350 $4,700,000 $44.00 DCT Industrial Trust Runge Paper Co. 751 Expressway Dr Itasca 63,305 $4,100,000 $65.00 Duke Realty Corporation TA Associates Realty 1880 Busse Rd Elk Grove VIllage 60,000 $3,000,000 $50.00 Sheile Group Jasper Campise 854 Fairway Dr Bensenville 52,326 $2,100,000 $40.00 854 Fairway LLC Chicago Title Land Trust Significant O’Hare Lease Transactions 4th Qtr 2011 Property Address City Leased (SF) Tenant Comments 560-590 Supreme Dr Bensenville 133,954 CTL Global Inc. New lease 921-925 Ardmore Ave Itasca 116,880 4C Logistics Lease renewal 2201 Arthur Ave Elk Grove Village 107,350 Runge Paper Co. Sale/leaseback 2050 Clearwater Dr Des Plaines 90,780 Ambius New lease 1500 Chase Ave Elk Grove Village 77,486 Mainfreight New lease 747-777 Chase Ave Elk Grove Village 61,600 Acme Industries New lease Italics denotes NAI Hiffman transaction NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 51 West Cook POPULATION 250,582 2000–2010 POPULATION CHANGE -1.9% # INDUSTRIAL BUILDINGS 740 MARKET SIZE (SF) 60,392,784 VACANCY 6,857,809 SF (11.4%) 4Q11 NET ABSORPTION 90,412 YTD NET ABSORPTION 360,146 NEW SUPPLY (SF) 0 UNDER CONSTRUCTION (SF) 0 Niles k Grove Village Ohare Int'l Airport Bensenville 294 90 Schiller Park 90 19 94 Franklin Park 290 Skokie 43 Chicago 45 Elmhurst Submarket Trends Vacancy Rate Net Absorption 64 20 Asking Rents Vacancy and Absorption 1,000,000 15% 600,000 13% 200,000 11% Melrose Park Bellwood Oak Park 290 West Cook Overview The West Cook submarket draws companies from the city of Chicago looking for a more functional building and additional amenities compared to the aging, often obsolete inventory of properties in -200,000 9% -600,000 7% 2007 -1,000,000 2008 2009 Vacancy Rate (%) 2010 2011 5% Net Absorption (SF) Chicago. Additionally, companies migrate to the area from the nearby O’Hare submarket where interstate and airport access is similar, but rental rates tend to be higher. The West Cook submarket benefits from good access to the city of Chicago, close proximity to area interstates Inventory By City and rail providers and relatively low rental rates. It is primarily an owner/ user market, but leasing opportunities have increased as institutional 12% and private owners have entered the submarket. Franklin Park 5% Melrose Park 37% 8% Bellwood Vacancy and Absorption Schiller Park 9% 29% Berkeley Similar to neighboring submarkets, the West Cook vacancy rate Harwood Heights, Hillside, Maywood, Norridge, River Grove decreased through much of 2011, as increased leasing activity resulted in the absorption of several thousand SF of vacant space. The year ended with a vacancy rate of 11.4%, the lowest rate recorded in the submarket in nearly three years, when rates were quickly rising due Construction Deliveries 2000-2011 1,500,000 to the market’s reaction to the worsening economic situation. Net 1,200,000 absorption totaled 360,146 SF over the course of the year, with 90,412 SF of that space absorbed during the fourth quarter. 900,000 600,000 300,000 2011 2010 2008 2009 2007 2006 2005 2004 2003 2002 2001 2000 0 “The West Cook vacancy rate has decreased to its lowest level in nearly three years due to increased leasing activity.” Pictured Above: 200 Champion Way in Northlake, purchased as part of 9-property portfolio by Duke Realty Corporation during the fourth quarter Available Space Profile There are no ongoing construction projects in the West Cook 0.5 MM submarket. The former Central Grocers site, a 24.8 acre parcel, 1,000 – 19,999 SF Available 1.5 MM 2.7 MM is still awaiting a build-to-suit opportunity and can accommodate 20,000 – 49,999 SF Available a building up to 700,000 SF in size. 50,000 – 99,999 SF Available 2.1 MM Transaction Activity 100,000 – 199,999 SF Available West Cook Overview Construction 200,000+ SF Available 2.8 MM The Union Pacific Railroad Company purchased two buildings on Lake Street in Northlake in December. The buildings include 50 # of Buildings a 303,935 SF truck terminal facility and a 65,796 SF utility substation on three parcels of land totaling 40.72 acres. The railroad company purchased the buildings primarily for land value, with 40 30 plans to expand their neighboring rail yard onto the purchased 20 land in the future. 10 0 e 0+ bl 00 ila 0, va 20 A 9 SF 99 9, 19 – e 0 bl 00 ila 0, va 10 A SF 99 ,9 99 – ble 00 ila ,0 va 50 A SF 99 ,9 49 – ble 00 ila ,0 va 20 A SF 99 ,9 19 ble – 0 ila 00 va 1, F A S Electrolytic nickel distributor King Supply renewed their lease for 64,800 SF at 9201 W Belmont Avenue in Franklin Park during the fourth quarter. Cosco Industries, Inc., manufacturer and marketer of marking devices and stamps, reduced their space in the 103,000 SF building at 7220 W Wilson Avenue to 49,000 SF. Lawrence Screw leases the remainder of the building. Looking Forward The past three quarters of positive absorption and a declining vacancy rate have been encouraging, suggesting that the West Cook submarket is beginning to feel the effects of the recovery and demand is returning to the area as new leases are signed in previously vacant spaces. Conditions should continue to gradually improve through 2012 and beyond. Significant West Cook Sale Transactions 4th Qtr 2011 Property Address City Size (SF) Sale Price Price PSF Buyer Seller 303 & 317 W Lake St Northlake 369,731 $32,000,000 $87.00 Union Pacific Reailroad Company CenterPoint Properties 200 Champion Way Northlake 238,064 $17,350,000 $73.00 Duke Realty Corporation TA Associates Realty 3311-3333 Charles St Franklin Park 174,082 $3,250,000* $19.00* Chicago Records Management MB Financial Bank 11600 W Grand Ave Melrose Park 150,000 $4,200,000 $28.00 Northlake Grand LLC Tin Inc. 2001-2045 N Cornell Ave Melrose Park 149,000 $2,000,000* $13.00* Bolpe Sergio MB Financial Bank 11440 Addison Ave Franklin Park 111,588 $2,750,000 $25.00 Duke Realty Corporation TA Associates Realty Significant West Cook Lease Transactions 4th Qtr 2011 Property Address City Leased (SF) Tenant Comments 9201 W Belmont Ave Franklin Park 64,800 King Supply Lease renewal 7220 W Wilson Ave Harwood Heights 49,000 Cosco Industries, Inc. Lease renewal 10415 United Pky Schiller Park 48,232 Blue Sky Parking LTD New lease *REO sale Italics denotes NAI Hiffman transaction NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 53 Chicago POPULATION 2,695,598 2000–2010 POPULATION CHANGE -6.9% # INDUSTRIAL BUILDINGS 2,810 MARKET SIZE (SF) 214,455,787 VACANCY 18,812,104 SF (8.8%) ale Wood Dale 4Q11 NET ABSORPTION -350,726 355 YTD NET ABSORPTION 1,376,879 NEW SUPPLY (SF) 0 UNDER CONSTRUCTION (SF) 290 94 Des Plaines rg Elk Grove Village Niles Skokie Ohare Int'l Airport 41 Chicago North Franklin Park Elmhurst 64 Melrose Park Oak Park 41 90 94 290 Cicero 0 55 La Grange Chicago Midway Airport Burr Ridge Bedford Park Bridgeview Submarket Trends 41 Chicago South ook Vacancy Rate Net Absorption Asking Rents 294 Alsip Palos Heights 355 57 Blue Island 94 90 Gary/Chicago Airp Chicago Overview Vacancy and Absorption 2,000,000 11% 1,000,000 10% 0 9% -1,000,000 8% -2,000,000 7% The industrial market within the city limits is as diverse as its residents. Much of the modern development in recent years has taken place in neighborhoods close to downtown, such as Pilsen/Bronzeville 2007 -3,000,000 2008 2009 Vacancy Rate (%) 2010 2011 6% Net Absorption (SF) (Near South), Kinzie Corridor/Avondale (Near North), and Back of the Yards/Crawford (Near Southwest). Typical firms that take advantage of this proximity to densely-populated areas include food and home improvement-related distribution companies. There are still many industrial companies that operate in less-functional buildings, but Construction Deliveries 2000-2011 make the trade-off for a readily available labor pool. Since 1987, the 2,000,000 City of Chicago has seen a slowing of the erosion of its industrial base, 1,500,000 through the creation of Planned Manufacturing Districts (PMDs). These PMDs make it nearly impossible to change the zoning, which has kept 1,000,000 the underlying cost of industrial land low. Companies that would have 500,000 otherwise been forced to greenfield developments in the suburbs have 2011 2010 2008 2009 2007 2006 2005 2004 2003 2002 2001 2000 0 remained within Chicago city limits. Vacancy and Absorption The submarket has yet to respond to the slowly improving economic recovery, due in part to the prevalence of aging, less desirable buildings in the area and the tendency of area users to own their facilities long- “Major adjustments to the vacancy rate are unlikely due to the unique product and type of user found in the city.” Pictured Above: 5353 W Armstrong Avenue, purchased by Chicago Taxi Medallion Management for their new fleet maintenance facility during the fourth quarter Available Space Profile city limits likely ended up there for specific reasons. The area does not see the type of demand the more active suburban 2.0 MM 7.6 MM submarkets do. 1,000 – 19,999 SF Available 4.3 MM 20,000 – 49,999 SF Available 50,000 – 99,999 SF Available Construction 100,000 – 199,999 SF Available 4.5 MM No new developments are underway in the city. Aside from Chicago Overview term. Businesses located in an industrial building within the 200,000+ SF Available 7.1 MM building expansion and speciality construction projects, this will likely remain the case until significant absorption occurs. 200 Transaction Activity # of Buildings 150 The 110,646 SF building located at 5353 W Armstrong Avenue in the city’s Jefferson Park neighborhood was sold by metal products manufacturer Pyramid Mouldings to Chicago Taxi Medallion Management for $2.3 million in October. The buyer 100 50 0 e 0+ bl 00 ila 0, a v 20 A 9 SF 99 9, 19 – e 0 bl 00 ila 0, va 10 A SF 99 ,9 99 – ble 00 ila ,0 va 50 A SF 99 ,9 49 – ble 00 ila ,0 a v 20 F A S 99 ,9 19 ble – 0 ila 00 va 1, F A S plans to convert the building into a fleet maintenance facility for their growing fleet of more than 500 city cabs. Ford Motor Company purchased the 102,107 SF building on 5.8 acres located at 2638 E 126th Street for $2.2 million in November. Ford plans to tear down the existing building to create an employee parking lot for their plant located across the street. Looking Forward The unique product in the industrial parts of the city and the type of users interested in calling Chicago home suggests the major adjustments to the area’s vacancy rate are unlikely. Space will be gradually absorbed over the coming quarters. Significant Chicago Sale Transactions 4th Qtr 2011 Property Address Size (SF) Sale Price Price PSF Buyer Seller 5353 W Armstrong Ave 110,646 $2,300,000 $21.00 Chicago Taxi Medallion Management Pyramid Mouldings Inc 2638 E 126th St 102,107 $2,200,000 $22.00 Ford Motor Land Development CenterPoint Properties 4200 & 4300 W 35th St 73,713 $7,050,000 $96.00 The Peoples Gas Light & Coke Company Wonderview Corporation 2500 S Dearborn St 71,000 $2,600,000 $37.00 Chee’s Keeley Market Service Web Offset Corp 2551-2555 N Elston Ave 41,100 $3,200,000 $78.00 CC Elston LLC Appetizers & Inc Significant Chicago Lease Transactions 4th Qtr 2011 Property Address Leased (SF) Tenant Comments Calumet Business Center 86,470 Noble Americas Lease renewal (two spaces) 4850 S Kilbourn Ave 63,529 A. Lava & Son Co. Lease renewal 3333 W 47th Pl 47,600 Great Lakes Lumber & Pallet New lease 2940 W 36th St 33,870 Quality Truck & Trailer New lease 2101-2107 W Carroll Ave 20,000 Kim & Scott’s Gourmet Pretzels Lease renewal Italics denotes NAI Hiffman transaction NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 55 I-88 Corridor POPULATION 578,404 2000–2010 POPULATION CHANGE +25.8% # INDUSTRIAL BUILDINGS 771 MARKET SIZE (SF) 61,834,957 VACANCY 6,356,231 SF (10.3%) 4Q11 NET ABSORPTION 503,378 YTD NET ABSORPTION 823,031 NEW SUPPLY (SF) 0 UNDER CONSTRUCTION (SF) 0 St Charles 290 Carol Stream Elmhurst West Chicago 355 Batavia Oak Brook 56 83 294 56 North Aurora 88 Lisle Downers 31 59 25 Naperville 53 Grove Sugar Grove Aurora Woodridge 34 55 Montgomery Dupage Airport 59 30 30 Bolingbrook Submarket Trends Vacancy Rate Net Absorption Asking Rents I-88 Corridor Overview Vacancy and Absorption 1,000,000 15% 600,000 13% 200,000 11% The I-88 Corridor industrial submarket saw increased demand and speculative development over the previous five years due to the lack of land for development in feeder submarkets such as Central DuPage -200,000 9% -600,000 7% 2007 -1,000,000 2008 2009 2010 Vacancy Rate (%) 2011 5% Net Absorption (SF) and West Cook. Developers were drawn to the large available land sites and easy access to major expressways that the I-88 submarket has to offer. This rapid pace of development has stopped over the past three years as obtaining project financing became difficult, vacancy Inventory By City has increased and demand has been limited. 17% Vacancy and Absorption Aurora 7% 43% Naperville Market conditions have been improving in the I-88 Corridor for the Montgomery better part of the past two years. In that time, the vacancy rate has Downers Grove 15% Oswego, Westmont, North Aurora, Hinsdale, Lisle, etc. 18% declined nearly four percentage points as more than 2.4 million SF of vacant space has been absorbed. At the end of the year, the I-88 Corridor vacancy rate stood at 10.3%, the lowest rate witnessed in the submarket in three years. As the market responded to the recent economic recession, companies downsizing and closing their doors led Construction Deliveries 2000-2011 2,500,000 to 2.34 million SF of new vacant space being added to the submarket 2,000,000 tally. All of that space has been absorbed during the two years since 1,500,000 things turned around, and the I-88 Corridor has recovered. Asking lease rents remain low, however, yet to return to pre-recession levels. 1,000,000 500,000 2011 2010 2008 2009 2007 2006 2005 2004 2003 2002 2001 2000 0 “All of the 2.34 million SF of vacant space added to the I-88 Corridor market during the recession has been recovered during the two years since.” Pictured Above: 940 N Enterprise Street in Aurora, one of the two buildings purchased by Panattoni Development Company as part of a portfolio for $14.325 million during the fourth quarter Available Space Profile New construction activity in the I-88 Corridor is limited to the potential construction of a new warehouse facility for U.S. 0.8 MM Foodservice in Aurora, where the company purchased an almost 2.6 MM 1,000 – 19,999 SF Available 1.4 MM 50-acre parcel of land in 2010. 20,000 – 49,999 SF Available 50,000 – 99,999 SF Available 100,000 – 199,999 SF Available Transaction Activity 1.6 MM 1.7 MM 200,000+ SF Available I-88 Corridor Overview Construction Panattoni Development Company, headquartered in Sacramento, purchased two 1990s-era buildings in Aurora in November. The 100 # of Buildings portfolio purchase included the 163,420 SF warehouse building 80 in the White Oak Business Park that was 30% vacant at the time 60 of the sale and the 257,542 SF manufacturing building at 940 N Enterprise Street in the Meridian Business Campus that was 40 70% vacant when the deal closed. 20 0 e 0+ bl 00 ila 0, va 20 A 9 SF 99 9, 19 – e 0 bl 00 ila 0, va 10 A SF 99 ,9 99 – ble 00 ila ,0 va 50 A SF 99 ,9 49 – ble 00 ila ,0 a v 20 F A S 99 ,9 19 ble – 0 ila 00 va 1, F A S The largest new lease signed during the fourth quarter involved valve and control system manufacturer Henry Pratt Company leasing 108,273 SF at 225 S Highland Avenue in Aurora’s Shetland Business Park. Green Sustainable Packaging, manufacturer of water soluble liquid and gel packaging products, leased 78,494 SF at 1455 Sequoia Drive in Aurora, bringing the building to 84% occupancy, and relocating their business from West Chicago. Looking Forward The recovery of the I-88 Corridor has been relatively quick and consistent due to the submarket’s many desirable attributes for potential tenants. One of the Chicago industrial market’s premier submarkets, the demand and activity witnessed in the area over the past two years will continue to spread to neighboring submarkets, adding momentum to the market recovery. Significant I-88 Corridor Sale Transactions 4th Qtr 2011 Property Address City Size (SF) Sale Price Price PSF Buyer Seller 2 property portfolio Aurora 420,962 $14,325,000 $34.00 Panattoni Development Co James Campbell Company LLC 600 & 700 N Commerce Ave Aurora 259,416 $16,000,000 $62.00 TA Associates Realty General Electric Capital Corporation 2580 Diehl Rd Aurora 65,477 $5,200,000 $79.00 Industrial Income Trust, Inc. HSA Commercial Real Estate Significant I-88 Corridor Lease Transactions 4th Qtr 2011 Property Address City Leased (SF) Tenant Comments 2001-2051 Baseline Rd Montgomery 295,620 Caterpillar Logistics Lease renewal 225 S Highland Ave Aurora 108,273 Henry Pratt Company New lease 1455 Sequoia Dr Aurora 78,494 Green Sustainable Packaging New lease 1455 Sequoia Dr Aurora 55,161 Varvit SPA New lease 2012 Corporate Ln Naperville 38,524 Schwarzkopf, Inc. Lease renewal 2012 Corporate Ln Naperville 34,717 Cable Plus, Inc. Lease renewal Italics denotes NAI Hiffman transaction NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 57 I-55 Corridor POPULATION 243,496 2000–2010 POPULATION CHANGE +37.1% # INDUSTRIAL BUILDINGS 655 MARKET SIZE (SF) 80,357,318 VACANCY 6,370,097 SF (7.9%) 4Q11 NET ABSORPTION -310,793 YTD NET ABSORPTION 2,718,457 NEW SUPPLY (SF) 0 UNDER CONSTRUCTION (SF) 415,000 a 59 88 Downers Grove Naperville Woodridge Bolingbrook 59 30 Net Absorption 294 Burr Ridge 53 Submarket Trends Vacancy Rate Hinsdale Asking Rents Plainfield 55 Romeoville 355 171 I-55 Corridor Overview Vacancy and Absorption 4,000,000 15% 3,000,000 12% 2,000,000 9% 1,000,000 6% 0 3% Of all of the Chicago area industrial submarkets, the I-55 Corridor has seen the most activity and development interest over the past several years. As a result, the majority of the available land parcels are either 2007 -1,000,000 2008 2009 Vacancy Rate (%) 2010 2011 0% Net Absorption (SF) Inventory By City already developed or are controlled by developers, rendering the I-55 Corridor an “infill market” with little additional land available for significant new development. Vacancy and Absorption The I-55 Corridor was one of the first submarkets to improve following 5% 5% 9% 37% 10% Bolingbrook the economic downturn. During the year-long period including the Romeoville second half of 2010 through the first half of 2011, more than 5 million SF Woodridge of vacant space was absorbed in both large and small transactions. This Lemont flurry of activity dropped the area’s vacancy rate 6.3%, an astonishing Plainfield Burr Ridge, Forest View, Willowbrook 34% adjustment for such a short period of time. Since then, things have settled down a bit, as the third quarter of the year saw little absorption and absorption turned negative in the fourth quarter, totaling negative 310,793 SF. However, several leases have been signed in the past two Construction Deliveries 2000-2011 10,000,000 quarters, indicating the recent improvement trend will soon resume. 8,000,000 The I-55 Corridor ended the year with a 7.9% vacancy rate, 3.4% lower 6,000,000 than the rate observed a year ago. 4,000,000 2,000,000 2011 2010 2008 2009 2007 2006 2005 2004 2003 2002 2001 2000 0 “Numerous deals both large and small in size have pushed the I-55 Corridor vacancy rate down more than 5.5% in the past year.” Pictured Above: 1165 Crossroads Parkway in Romeoville, where warehousing firm Distribution 2000 Inc. leased 236,882 SF during the fourth quarter Wi Spr Available Space Profile The fourth quarter saw the groundbreaking of a new 362,500 SF 0.5 MM 0.8 MM build-to-suit facility in Woodridge for food service equipment and supplies company Edward Don & Company. The building will be 1,000 – 19,999 SF Available 1.7 MM the first in the new 80-acre Union Pointe industrial and office 50,000 – 99,999 SF Available 7.0 MM business park at the intersection of I-355 and I-55. 20,000 – 49,999 SF Available 100,000 – 199,999 SF Available 2.0 MM 200,000+ SF Available I-55 Corridor Overview Construction Transaction Activity Several distribution and warehousing buildings, each over 50 # of Buildings 100,000 SF in size, were traded in the I-55 Corridor during the 40 fourth quarter. The majority of these buildings were involved in 30 multi-property portfolio sales between investment companies. LaSalle Investment Management, Inc. purchased a 5-property 20 portfolio that included three properties in Romeoville totaling 10 427,652 SF and one 269,662 SF property in Bolingbrook. IT 0 e 0+ bl 00 ila 0, va 20 A 9 SF 99 9, 19 – e 0 bl 00 ila 0, a v 10 A SF 99 ,9 99 – ble 00 ila ,0 va 50 A SF 99 ,9 49 – ble 00 ila ,0 va 20 A SF 99 ,9 19 ble – 0 ila 00 va 1, F A S distribution, supply chain management and contract assembly services company SYNNEX Corporation purchased the 450,900 SF building they had leased at 1160-1180 W Remington Boulevard in Romeoville for about $15.5 million in November. The largest new lease of the fourth quarter involved warehousing firm Distribution 2000 Inc. leasing 236,882 SF at 1165 Crossroads Parkway in Romeoville, moving their operations early next year from two facilities totaling about 175,000 SF in Bolingbrook. Looking Forward The I-55 Corridor recently witnessed significant absorption in excess of one million SF for multiple quarters, and is now experiencing a historically low vacancy rate that may promote new speculative development. Significant I-55 Corridor Sale Transactions 4th Qtr 2011 Property Address City Size (SF) Sale Price Price PSF Buyer 5 property portfolio Various 796,049 $51,500,000 $65.00 LaSalle Investment Management, Inc. Panattoni Development Company 1053 Schmidt Rd Romeoville 499,200 $18,500,004* $37.00* KTR Capital Partners LP Allianz Real Estate America 1160-1180 W Remington Blvd Romeoville 450,900 $15,525,000 $34.00 SYNNEX Corporation Panattoni Development Company 605 Crossroads Pky Romeoville 354,400 $13,300,000 $38.00 Duke Realty Corporation TA Associates Realty 254 Internationale Dr Bolingbrook 261,444 $11,000,000 $42.00 KTR Capital Partners LP Allianz Real Estate America 370 W Crossroads Pky Bolingbrook 258,560 $9,200,000 Duke Realty Corporation TA Associates Realty $36.00 Seller Significant I-55 Corridor Lease Transactions 4th Qtr 2011 Property Address City Leased (SF) Tenant Comments 2601 Internationale Pky Woodridge 356,621 Best Buy Lease renewal 1165 Crossroads Pky Romeoville 236,882 Distribution 2000, Inc. New lease 3-7 Timber Ct Bolingbrook 178,670 CHEP New lease 340 W Crossroads Pky Bolingbrook 160,779 North Coast Logistics Lease renewal *Allocated price based on full value of portfolio transaction Italics denotes NAI Hiffman transaction NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 59 South Cook 2000–2010 POPULATION CHANGE +0.5% # INDUSTRIAL BUILDINGS 1,126 MARKET SIZE (SF) 85,528,194 55 VACANCY 9,748,401 SF (11.4%) 4Q11 NET ABSORPTION 62,074 YTD NET ABSORPTION 211,854 NEW SUPPLY (SF) 0 UNDER CONSTRUCTION (SF) 267,000 Chicago Midway Airport Bedford Park Woodridge Bridgeview 12 20 294 7 45 le Alsip Palos Heights 43 355 90 57 Blue Island 83 50 Mokena Vacancy Rate Asking Rents Net Absorption Gary/Chi South Holland Tinley Park Submarket Trends 1 Hammond 80 94 80 394 Matteson 1 Park Forest 30 Sauk Village Monee is 716,130 Schererville na POPULATION South Cook Overview Vacancy and Absorption 2,000,000 15% 1,000,000 13% 0 11% The South Cook submarket is one of the Chicago metropolitan area’s -1,000,000 9% 2007 -2,000,000 2008 2009 Vacancy Rate (%) 2010 largest in terms of geographic size and total square footage. The area benefits from a solid mix of manufacturing and distribution facilities due to an abundance of skilled, educated labor, and excellent access to several major expressways, train lines and public transportation. 2011 7% Net Absorption (SF) The submarket consists of primarily older product with scattered modern infill developments of around 2 million SF in Bedford Park Inventory By City and additional projects in Alsip and Sauk Village. Ownership is mixed, including institutional, owner/user and both national and local private 26% 35% Bedford Park owners. While its location close to Chicago is key, Cook County taxes Alsip can be a financial burden. Chicago Heights Bridgeview 5% 14% 8% Vacancy and Absorption South Holland Other Southern Cook Communities 11% The South Loop submarket responded quickly to the economic downturn, witnessing a 4.6% spike in the vacancy rate during 2008 and 2009. Since this rate peaked at 13.6% in early 2009, the submarket has experienced alternating periods of negative and positive absorption, Construction Deliveries 2000-2011 2,500,000 with a general trend towards improvement. The year ended with a 2,000,000 vacancy rate of 11.4%, 2.2% below the peak. Net absorption for year 1,500,000 totaled 211,854 SF, with 62,074 SF absorbed during the fourth quarter. 1,000,000 500,000 2011 2010 2008 2009 2007 2006 2005 2004 2003 2002 2001 2000 0 “The year ended with a vacancy rate of 11.4%, which is 2.2% below the peak rate recorded in 2009.” Pictured Above: 7400-7420 Richards Road in Bridgeview, a 161,740 SF building leased by World Imports during the fourth quarter Available Space Profile Construction continues on Winpak’s new 267,000 SF build-tosuit facility at the LogistiCenter at Sauk Village and is anticipated 1.0 MM to be completed by February 2012. Otherwise, new development 1,000 – 19,999 SF Available 1.9 MM 4.3 MM 20,000 – 49,999 SF Available is likely to remain minimal until sustained absorption is realized 50,000 – 99,999 SF Available 2.0 MM and rental rates increase. 100,000 – 199,999 SF Available South Cook Overview Construction 200,000+ SF Available 3.6 MM Transaction Activity Three Bedford Park buildings were purchased by Denver- 120 based Industrial Income Trust Inc. during the fourth quarter. The # of Buildings 100 buildings were part of a 12-building, $195.5 million portfolio 80 purchase by the industrial real estate investment trust which 60 also included properties in Moreno Valley, California and outside 40 Dallas, Texas. 20 0 e 0+ bl 00 ila 0, va 20 A 9 SF 99 9, 19 – e 0 bl 00 ila 0, va 10 A SF 99 ,9 99 – ble 00 ila ,0 va 50 A SF 99 ,9 49 – ble 00 ila ,0 va 20 F A S 99 ,9 19 ble – 0 ila 00 va 1, F A S The largest new lease signed during the fourth quarter involved furniture wholesale distributor World Imports leasing the 161,740 SF building at 7400-7420 Richards Road near the 95th Street interchange at I-294 in Bridgeview. This is the Philadelphiabased company’s first facility in Illinois. Looking Forward While the South Cook vacancy rate has come down a bit from its peak in 2009, lease rates remain low and building values are stagnant for class “B” buildings in the submarket. An uptick in manufacturing activity is a positive sign for the South Cook submarket, hopefully leading to absorption and rent stabilization over the next two years. South Cook Sale Transactions 4th Qtr 2011 Property Address City Size (SF) Sale Price 5445 W 73rd St Bedford Park 470,160 5151 W 73rd St Bedford Park 5139 W 73rd St Price PSF Buyer Seller $20,003,026* $43.00* Industrial Income Trust, Inc. Ridge Property Trust 272,385 $11,588,659* $43.00* Industrial Income Trust, Inc. Ridge Property Trust Bedford Park 270,789 $11,520,757* $43.00* Industrial Income Trust, Inc. Ridge Property Trust 1230 W 171st St Hazel Crest 40,410 $1,550,000 $38.00 Seefried Properties, Inc. Private trust 6754 W 74th St Bedford Park 23,037 $837,000 $36.00 Sheridan Plumbing & Sewer Inc Crescent Realty Corp South Cook Lease Transactions 4th Qtr 2011 Property Address City Leased (SF) Tenant Comments 7400-7420 Richards Rd Bridgeview 161,740 World Imports New lease 8687 S 77th Ave Bridgeview 137,078 Allegheny Ludlum New lease 10130 Virginia Ave Chicago Ridge 36,000 Respro Inc New lease 511 W Armory Dr South Holland 30,000 Paulsen Pipe New lease *Allocated price based on full value of portfolio transaction Italics denotes NAI Hiffman transaction NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 61 I-80/Joliet Corridor POPULATION 447,272 2000–2010 POPULATION CHANGE +45.5% # INDUSTRIAL BUILDINGS 614 MARKET SIZE (SF) 62,388,294 VACANCY 8,415,319 SF (13.3%) 4Q11 NET ABSORPTION 38,246 YTD NET ABSORPTION 2,067,702 NEW SUPPLY (SF) 555,292 UNDER CONSTRUCTION (SF) 265,000 North Aurora 88 59 Downers Grove Aurora 55 Bolingbrook 294 Plainfield 34 126 355 55 71 30 Shorewood Joliet 23 52 53 6 Tinley Park Mokena 30 New Lenox 52 Minooka Channahon Elwood 47 45 6 le Submarket Trends Vacancy Rate Net Absorption 80 Ottawa 6 Seneca 57 113 53 170 Asking Rents 55 102 113 Kankakee I-80/Joliet Corridor Overview Vacancy and Absorption 2,000,000 25% 1,500,000 21% 1,000,000 17% 500,000 13% The I-80/Joliet Corridor submarket has historically catered to multi-state “big box” distribution. Its access to I-80 and I-55 position the corridor well for distribution operations. In addition, the nation’s largest inland 0 9% 2007 -500,000 2008 2009 2010 Vacancy Rate (%) 2011 5% Net Absorption (SF) port is located in Joliet and Elwood. This intermodal development, also known as CenterPoint Intermodal Center, has remained a bright spot not only in the corridor, but for the entire Chicago market. CenterPoint Intermodal Center now offers intermodal service as well as direct rail Inventory By City service with both the BNSF and Union Pacific Railroads. Vacancy and Absorption Joliet 25% 44% 5% Elwood The vacancy rate continued to decline through 2011, reaching 13.3% Minooka by the end of the year, the lowest rate witnessed in the submarket in Ottawa 10% Mokena, New Lenox, Shorewood, Frankfort, etc. 16% several years. More than 2 million SF of vacant space was absorbed over the course of the year, resulting in a vacancy rate 2.5% below the 15.8% rate recorded a year ago, and 7.4% below the 20.7% peak reached at the beginning of 2009. Construction Deliveries 2000-2011 Construction 8,000,000 Two new buildings were completed in the submarket during the fourth 6,000,000 quarter, totaling 555,292 SF. A build-to-suit project for speciality 4,000,000 chemical manufacturer Stepan Company measuring 217,692 SF was 2,000,000 2011 2010 2008 2009 2007 2006 2005 2004 2003 2002 2001 2000 0 “More than 2 million SF of vacant space was absorbed over the course of 2011, resulting in a vacancy rate 2.5% lower than a year ago.” Pictured Above: 21511 Division Street in the Crest Hill Business Park, a 262,500 SF building purchased by High Street Equity Advisors in late October A Available Space Profile bus and engine manufacturer Navistar International, who last year 0.4 MM leased the 522,520 SF building at 2700 W Haven Road finished 0.6 MM 0.6 MM a 337,600 SF expansion to the building during the fourth quarter, 1,000 – 19,999 SF Available 20,000 – 49,999 SF Available 1.7 MM growing their manufacturing facility to 860,100 SF. Announced 50,000 – 99,999 SF Available during the fourth quarter, CenterPoint Properties recently broke 100,000 – 199,999 SF Available 7.3 MM 200,000+ SF Available ground on a new build-to-suit for recycling company Resource Management Company (RMC). The new 265,000 SF building is the latest success story for the CenterPoint Intermodal Center- 100 I-80/Joliet Corridor Overview completed in the CenterPoint Intermodal Center-Joliet. Truck, # of Buildings Joliet, which continues to expand. 80 Transaction Activity 60 The largest sale transaction of the fourth quarter involved 40 Boston-based High Street Equity Advisors purchasing the class 20 “A” industrial warehouse at 21511 Division Street in the Crest Hill 0 e 0+ bl 00 ila 0, a v 20 A 9 SF 99 9, 19 – e 0 bl 00 ila 0, va 10 A SF 99 ,9 99 – ble 00 ila ,0 va 50 A SF 99 ,9 49 – ble 00 ila ,0 a v 20 F A S 99 ,9 19 ble – 0 ila 00 va 1, F A S Business Park. The 262,500 SF building is leased long-term to Goglanian Bakeries, and sold for $11.6 million. Global supply chain management and logistics solutions company Ozburn-Hessey Logistics (OHL) leased 476,988 SF at 2780 McDonough Street in Joliet. The space had been leased by another logistics provider, Ryder Integrated Logistics Inc. OHL is taking over the lease and was able to negotiate an extension. Looking Forward The past two years have witnessed significant absorption of vacant space in the I-80/Joliet Corridor, and a quickly dropping vacancy rate. The location of the submarket and its intermodal developments will continue to drive interest, demand and eventually additional construction in the area. I-80/Joliet Corridor Sale Transactions 4th Qtr 2011 Property Address City Size (SF) Sale Price Price PSF Buyer Seller 21511 Division St Crest Hill 262,500 $11,600,000 $44.00 High Street Equity Advisors Greco & Sons 8550 W 185th St Tinley Park 100,000 $3,150,000 $32.00 David Anders TCB Development I-80/Joliet Corridor Lease Transactions 4th Qtr 2011 Property Address City Leased (SF) Tenant Comments 2780 McDonough St Joliet 476,988 OHL New lease CenterPoint Intermodal Center Elwood 264,600 Resource Management Companies New build-to-suit lease 2700 McDonough Rd Joliet 50,000 Rehrig Penn Logistics New lease 7700 W Graphic Dr Tinley Park 22,200 Velocity Sports Performance New lease 120 E Laraway Rd Frankfort 16,000 Southwest Fireplaces New lease 18621-18633 S 81st Ave Tinley Park 15,063 Genesis Casket New lease Italics denotes NAI Hiffman transaction NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 63 Northwest Indiana POPULATION 486,945 2000–2010 POPULATION CHANGE +1.3% # INDUSTRIAL BUILDINGS 431 MARKET SIZE (SF) 35,746,307 VACANCY 2,706,363 SF (7.6%) 4Q11 NET ABSORPTION 485,348 YTD NET ABSORPTION 610,850 NEW SUPPLY (SF) 0 UNDER CONSTRUCTION (SF) 0 g 20 90 Gary/Chicago Airport 12 Porter 94 Gary Hammond 80 94 80 90 Portage 6 65 Submarket Trends Vacancy Rate Net Absorption Indiana Illinois 30 Merrillville Valparaiso Crown Point Asking Rents Lowell Northwest Indiana Overview Vacancy and Absorption 1,000,000 15% 600,000 13% 200,000 11% The Northwest Indiana submarket is a bifurcated market, with areas north of I-80 including the towns of Hammond, East Chicago, and Gary containing some of the heaviest manufacturing facilities in the world, -200,000 9% -600,000 7% 2007 -1,000,000 2008 2009 2010 Vacancy Rate (%) 2011 5% Net Absorption (SF) home to companies like BP Amoco, US Steel, and Arcelor Mittal. There are many functionally obsolete crane & manufacturing buildings housing firms in this area that service the steel and chemical industries. South of I-80, towns such as Munster, Hobart, Merrillville and Portage Inventory By City cater to more modern business parks. Indiana has historically held significant economic advantages over Illinois, such as lower property Hammond 19% 25% taxes, utility costs, labor rates, and soft costs (workman’s compensation East Chicago and unemployment insurance). Most companies new to Northwest 4% Gary 11% Portage Indiana migrate from South Cook/Will Counties, but existing Northwest Merrillville Indiana firms rarely move across the state line to Illinois. 22% 19% Other Northwest Indiana Suburbs Vacancy and Absorption The Northwest Indiana vacancy rate peaked at 12.1% at the end of 2009 and has declined 4.4% during the two years since, ending the Under Construction & Recent Deliveries 1,500,000 year with a 7.7% rate. Net absorption has been overall positive during 1,200,000 this time, totaling more than 1.5 million SF of vacant space absorbed, 900,000 however 2011 did witness two periods of negative net absorption during the second and fourth quarters of the year. 600,000 300,000 2011 2010 2008 2009 2007 2006 2005 2004 2003 2002 2001 2000 0 “Net absorption has totaled more than 1.5 million SF during the past two years, pushing the vacancy rate down to 7.7%.” Pictured Above: The Clark, located at 6675 Daniel Burnham Drive in Portage, where Great Lakes Office Furniture, Inc. and Frick Services, Inc. leased space during the fourth quarter Available Space Profile The previous decade was an active construction period in the Northwest Indiana submarket, as more than 3 million SF was 0.3 MM 0.9 MM added to the total industrial inventory, an increase of about 1,000 – 19,999 SF Available 0.4 MM 20,000 – 49,999 SF Available 9%. Economic and vacancy concerns have resulted in limited 50,000 – 99,999 SF Available construction since 2009. 0.7 MM 100,000 – 199,999 SF Available 1.4 MM 200,000+ SF Available Transaction Activity New, used and refurbished furniture supplier Great Lakes Office 35 Furniture, Inc. leased 39,200 SF in the building known as The # of Buildings 30 Clark at 6675 Daniel Burnham Drive in Portage’s Ameriplex at the 25 Port business park, moving their operation to the building from 20 Northwest Indiana Overview Construction 15 Valparaiso. 10 5 Agriculture and grain warehousing company Frick Services, 0 e 0+ bl 00 ila 0, a v 20 A 9 SF 99 9, 19 – e 0 bl 00 ila 0, va 10 A SF 99 ,9 99 – ble 00 ila ,0 va 50 A SF 99 ,9 49 – ble 00 ila ,0 va 20 A SF 99 ,9 19 ble – 0 ila 00 va 1, F A S Inc. also leased space at 6675 Daniel Burnham Drive, leasing 10,000 SF during the fourth quarter. The Wawaka, Indianabased company is also located in a nearby building and needed additional space to store their product short-term. Looking Forward The Northwest Indiana vacancy rate has been on the decline since the beginning of 2010, and has reached historically low levels over the past few quarters. Looking for cost saving solutions, companies from the South Cook and Will County areas in Illinois continue to be attracted by the economic advantages and leasing incentives being offered by Northwest Indiana landlords. Northwest Indiana Sale Transactions Property Address City 4th Qtr 2011 Size (SF) Sale Price Price PSF Buyer Seller None to report Northwest Indiana Lease Transactions 4th Qtr 2011 Property Address City Leased (SF) Tenant Comments 6675 Daniel Burnham Dr Portage 39,200 Great Lakes Office Furniture, Inc New lease 1191 Erie Ct Crown Point 12,000 Nason’s Appliance Co New lease 6675 Daniel Burnham Dr Portage 10,000 Frick Services, Inc. New lease 200-212 Ivanhoe Ct Griffith 5,500 Catalyst Handlings Resources LLC New lease Italics denotes NAI Hiffman transaction NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 65 Logistics Review NAI Hiffman Market Review & 2012 Forecast Positioning for Profitability in 2012 - Transportation Drives Real Estate On average, transportation costs are typically eight to ten times the cost of the annual real estate spend and in most scenarios, transportation is the true “driver” behind real estate decisions. Logistics Cost Breakdown Source: Establish, Inc./Herbert W. Davis and Company 2006 Database 50.3% 21.8% 9.5% 1.2% O ie l pp er th 2.2% Su A Se n rv tio tio tra s is y ta er or or um t 2.7% in dm os or nt sp t 4.3% n Re C b La Tr ve In an 7.8% n ic e With this being the case, the issues raised and the obstacles that transportation-centric companies are attempting to overcome are without question shaping the foundation for the future of industrial real estate. So, what is the future? Consistently, the CEO’s and Chief Supply Chain Officers are commenting on how to integrate further with the railroads. The industrial developments that include a rail or transportation savings component will be in demand, able to charge a premium and maintain occupancy. Rail Positioning Further evidence towards the increase of rail usage is that the railroads have been preparing for more capacity. The BNSF Railroad capital expenditures in 2011 alone was $3.8 billion. Their capex budget in 2010 was $2.7 billion. The Class I carriers have all been expanding and/or developing their logistics hubs during this economic downturn. The railroad industry invested approximately $12 billion in America’s infrastructure in 2011. One particular area of focus for the railroads has been intermodal. Intermodal shipping is a method of transporting cargo using multiple modes of shipping from origin to destination, without any handling of the freight itself while changing modes. Transportation modes used in intermodal shipping can include trucks, railroad, ocean carriers, steamships, and airplanes. The most common combination is truck and rail. Trains can haul more cargo making rail far more efficient than trucks to move large loads. Using freight trains to haul goods also has the potential to significantly reduce environmental pollution by decreasing the amount of greenhouse gas emissions. However, trains cannot be used in “door-to-door” delivery and have more limited scheduling flexibility than trucks. Intermodal shipping, therefore, combines the best attributes of both rail and truck shipping. While intermodal shipping has rebounded tremendously, we are optimistic that intermodal growth will continue. Our growth expectation is based on intermodal’s lower emissions and lower prices, which are amplified when fuel prices increase, given rails’ fuel efficiency versus trucking. Historically, trucking firms suffer from greater than 100% annual driver turnover. When freight fully returns, trucking capacity will be difficult for shippers to locate and rail will be the only viable alternative. For most of the products being shipped, barge transport is not feasible due to perishable content or time sensitive delivery. Airfreight, as an alternative, is too costly for most and drives up the cost of the goods beyond competitive points. Other than trucking, intermodal presents the only real option from a transportation perspective. Trucking Challenges There are other factors leading to rail. The Journal of Commerce has reported that a trucking capacity shortfall of 180,000 is predicted for 2012. Two new trucking regulations will further deteriorate trucking capacity: CSA 2010 and Hours of Service. Fuel surcharges have grown and are now hovering around 30% with most corporations anticipating this to continue to climb – a corporation’s exposure to fuel charges is reduced when shipping via rail. Network Change These factors will drive and force change in the supply chain network. The majority of the distribution networks were designed with the assumption of “cheaper oil” as well as a more traditional Pictured Above: An aerial image of the CenterPoint Joliet Intermodal Terminal In addition, a key to future retail growth is the fastest growing sales channel: eCommerce. Some are projecting mobile commerce to be the highest overall sales channel within five years. Developing eCommerce distribution centers is becoming one of the biggest challenges for network design. Web logistics is very different from traditional logistics due to small order sizes, broad product ranges and short response time. Due to these differences, companies typically need three years to develop a professional eCommerce operation. Other areas of growth are manufacturing, food distribution and exporting. We will be seeing increased “re-shoring” where the all-in cost to produce and transport locally becomes more advantageous. Conversely, there has been significant growth in the export market leading to real estate development particularly with grain related operations and recycled paper. Freight Coming Back The two charts below illustrate that TEU volume is climbing back up. TEU literally means twenty-foot equivalent unit, a measure used for capacity in container transportation. For example, a 10,000 TEU container vessel has the capacity to carry 10,000 twenty foot containers. These charts are a good indicator of economic activity and the illustrated growth is a positive reflection on the economy. Total Container Port Traffic in TEUs - U.S. Total 50 MM Total TEU Traffic 40 MM 30 MM 20 MM 10 MM 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 0 Source: American Association of Port Authorities *Est. 2011 container TEU volumes Source: American Association of Port Authorities 10 MM 8 MM 6 MM 4 MM 2 MM 2011* 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 Most Active Sectors Today we are seeing 3PL’s as the most active sector in the Tenant marketplace. 3PL’s offer flexibility to a traditionally brick and mortar slower moving process. Companies can enter and exit markets more quickly in response to customer demand which is leading to shorter term lease commitments. The most common 3PL end-clients are in the retail sector. Total Container Port Traffic in TEUs - U.S. Total Logistics Review level of trucking capacity. With the amount of corporate spending on transportation, companies will be forced to evolve their network strategy to survive. Influencing and accelerating this is the fact that network change is not a fast process. This is not five years out; this is now. 0 Los Angeles Long Beach Savannah Oakland Seattle Tacoma New York / New Jersey Hampton Roads Houston Charleston In addition, as a very good indicator for real estate growth, the Cass Freight Index showed September 2011 shipments close to a four-year high. The broad-based Cass Freight Index (compiled by freight billing processor Cass Information Systems, and represents 1,200 divisions of firms across the SIC classification spectrum) reveals shipments and shipping spend are both on an upward trajectory. Cass Information Systems calculates a monthly freight index for North America shipping activity based on the freight transactions for large shippers in a wide variety of industries. The index is widely used by industry analysts and economists as an accurate barometer of North American shipping and economic trends. In September, the Cass Freight Index was close to a four-year high, with more shipments in any single month since November 2007, the month before the recession started and right before the freight index plunged to the lowest level in its 20-year history. Now that U.S. intermodal rail shipments through September 2011 are back to pre-recession levels, and the Cass Freight Index in September is also back to pre-recession levels for broaderbased shipping activity, these strong and ongoing shipping improvements would seem to defy the case for an economic downturn or double-dip recession. In addition, the railroads are projected continued freight recovery in 2013. How to Capitalize From a pure real estate perspective, a development may not have direct rail connectivity, however it’s critical to understand what transportation advantages a building or location offers. In particular, we have found it effective to have an understanding of the lift volume and specific function of the various intermodal operations. Equally important is the ability to correlate the transportation advantages directly to the real estate costs. Rate itself can only be pushed so far, whereas if a project can impact the corporate transportation spend, the actual net rent will be much less of a factor in the decision process. NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 67 Retail Review NAI Hiffman Market Review & 2012 Forecast The Chicago Retail market experienced a slight decline in market conditions in the fourth quarter of 2011, while the vacancy rate increased, ending the year at 8.5%. Average quoted asking rental rates in the Chicago retail market area are down over previous quarter levels and also down from the levels recorded a year ago. Quoted rents ended the fourth quarter 2011 at $16.11 PSF. This represents a 0.5% decrease in rental rates from the previous quarter and a 2.35% decrease from the same time a year ago. The shopping center market in Chicago currently consists of 3,794 projects with 160,662,132 SF of retail space in 5,427 buildings. It is comprised of community, neighborhood and strip centers. Over the past four quarters the shopping center vacancy rate has increased slightly from 12.1% to 12.3%. The power center average vacancy rate was 7% in the fourth quarter of 2011 with no new construction projects delivered to the market. The trend of little construction will continue through 2012, other than a free standing Super Walmart, Walgreens, CVS or a single tenant fast food building. Moreover, relocation and creation of the Super Walmarts has a meaningful impact on the additional market square footage. Currently, Walmart has four vacant 115,000 SF structures on the market and Lowe’s has recently closed the doors to four of their stores at 115,000 SF per store that adds additional SF of vacancy to the retail market. Subsequently, between Walmart and Lowe’s, 920,000 SF of big box “prime” vacant space has been added to the market. Another factor having direct impact on the retail market is the big box retailers who are working to shrink their footprints. Best Buy is focused on reducing their average space per store nationwide, while Walmart has reduced the size through the creation of their Walmart Express stores. Numerous other retailers are following suit. A recent trend within the Chicago Metro area has been a growing desire among consumers for fresher, organic and ethnic foods that has helped grocers remain in demand for either new retail construction or absorbing the vacant big box stores such as former Cub Foods, Walmart and Lowe’s. At the same time, wholesale clubs and lower priced grocery stores are appealing to shoppers seeking to save money. One rapidly expanding brand in Chicago is Mariano’s Fresh Market, who has opened several stores in the area in the past year. Sites that would work for food stores are no longer limited to the top one or two traditional grocers in the Chicago market. There are numerous “niche” food retailers in this retail category such as; Pete’s Produce, Cermak Produce, Tony’s Finer Food, Produce World, Trader Joe’s, Aldi and Sav A Lot. Ross Dress For Less, a 25,000 SF soft goods retailer with over 1,000 stores in 27 states, opened 12 stores in the Chicago market in 2011 and are actively pursuing additional locations. HH Gregg, a 25,000 SF rapidly expanding consumer electronics and appliance retailer with over 190 stores, opened 16 locations within the Chicago Metro area in 2011 and they too continue to pursue additional locations within the market. Savers, a 35,000 SF retailer also focused on the Chicago Metro trade area, opened two stores in 2011 with plans for additional expansion in 2012. The retail sector will see modest improvement in occupancy and rents until the market stabilizes. Retail remains one of the property types where opportunities are very specific and defined. Investment Market Review Investment Market Review NAI Hiffman Market Review & 2012 Forecast Investment Review The Macro Perspective Looking Back: In less than a four year period, the commercial real estate market went from a peak in 2007, into a credit crunch in 2008, through a financial crisis in 2009 to the beginnings of a recovery in 2010. The “pricedto-perfection” underwriting reflecting interest only periods, pro forma income, and higher loan-to-value ratios, along with complex structured investments, drove returns lower and asset values higher providing the ingredients for a pricing bubble. The CRE market was capital driven as opposed to market fundamentals driven. first quarter of 2010. Global and U.S. economic turmoil, pullback in the midyear level of CMBS originations, uneven demand across property types and a focus on core assets to weather the financial market volatility, creating a supplydemand imbalance, contributed to this dramatic pullback. Quarterly Sales Volume Percent Change 200% 100% 50% 0% -50% Source: Real Capital Analytics The following chart is an all-properties, national index designed to track same-property prices beginning January 2001. It shows a 49% decline in pricing from the February 2008 peak of 1.90 to the 0.98 trough! Moodys/REAL Commercial Property Price Index (CPPI) 2.0% 1.5% Quarterly Sales Volume by Property Type $120 Billion 1.0% Retail Office $100 Billion Industrial Multifamily 2011 2010 2009 2008 2007 2006 2005 2004 2003 $60 Billion 2002 2001 $80 Billion 0.5% Source: MIT Center for Real Estate, Real Capital Analytics $40 Billion $20 Billion 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 $0 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 -100% To put the timing and magnitude of the changes in sales volume in this cycle into perspective, we show in the first chart national quarterly dollar sales volumes by property type (multi-family, retail, office and industrial) beginning in 2001. The peak, the crunch and the crisis are clearly shown in the chart below. The aggregate quarterly dollar sales volumes declined 93% from the cycle peak in the first quarter of 2007 to the trough in the first quarter of 2009! Few investors had anticipated the breadth and depth of the collapse. As shown in the chart, 2010 and 2011 volumes, approaching those last seen in 2004 and 2005, have been inconsistent in the rate of recovery. Sales Volume Percent Change (Year Over Year) 150% Source: Real Capital Analytics The next chart shows the quarterly year-over-year change in sales volume for all properties beginning in 2002. Clearly growth in transaction volume slowed sharply in the second half of 2011 following the impressive gains beginning in the Pictured Above: 250 S Wacker Drive, purchased by Credit Suisse Asset Management for $90 million during the fourth quarter The next chart shows the quarterly number of properties sold nationally beginning in 2001, an indication of the liquidity within the market. The first quarter 2009 volume indicates that the market had changed dramatically. However, in comparing the quarterly change in dollar sales volume to the quarterly change in the number of properties sold, the peak-to-trough dollar declines were 94% and 35%, respectively, indicating that the dollar size of the transactions had fallen dramatically NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 69 with liquidity across the market varying greatly. Since then the market has improved, however, we are still at levels last seen almost seven years ago. Average Capitalization Rates by Property Type 10% 8% National Number of Properties Sold by Property Type 6,000 Retail 5,000 Office 4,000 Multifamily 6% Retail Office Industrial Multifamily Industrial 2011 2010 2009 2008 2007 2006 2005 2004 2003 2,000 2002 2001 3,000 4% Source: Real Capital Analytics 1,000 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 0 Source: Real Capital Analytics The next chart shows the quarterly year-over-year change in the number of properties sold for all properties. Clearly the market began to recover from the trough of 2009, again, the second half 2011 volume shows a dramatic decline in volume. 6% 4% 2% -2% Number of Properties Sold Percent Change (Year Over Year) 150% Gross Domestic Product Percent Change 0% Quarterly Properties Sold Percent Change 200% Looking Forward: Macroeconomic Issues • Sluggish outlook for the U.S. Economy: Although GDP has turned positive, it still remains below historically normal growth rates, and grew very little through much of 2011. -4% -6% -8% 100% 2011 2010 2009 2008 50% 2007 -10% 0% Source: U.S. Department of Commerce Bureau of Economic Analysis -50% 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 -100% Source: Real Capital Analytics The following chart shows average cap rates by property type beginning in 2001. The correlation between increasing sales volume and decreasing cap rates is clearly shown in the run up to the 2007 peak. What is not clear, however, is the impact of core transactions since mid-2009 which have skewed these data points. In a typical “liquid market” across all property Classes and sales volume, cap rates would not show the improvement shown. • Weak job growth: it’s been two and a half years since the recession ended; job growth has been modest at best. Much of the “political focus” on jobs is the unemployment rate. This rate can be misleading as it fails to take into account the labor force participation rate, a diminishing denominator that destorts the unemployment rate. Unemployment is slowly improving, but the economy still needs to add another 5.8 million jobs just to recover the jobs lost since the peak employment in 2007. Moreover, to keep pace with the population growth, an estimated 1 million jobs a year must be created, or 83,333 per month. Unemployment and Work Force Participation 12% 68% Metro Chicago Unemployment Rate U.S. Unemployment Rate 67% 10% U.S. Labor Force Participation Rate 2011 2010 2009 2008 2007 2% 2006 63% 2005 4% 2004 64% 2003 6% 2002 65% 2001 8% 2000 66% Source: Bureau of Labor Statistics • European sovereign debt crisis: the fall-out from the Eurozone sovereign debt crisis on the world financial markets continues to add uncertainty to the restructuring efforts by the EU and creates increasing downside risk to the world economy. • Fiscal pressure on state and local governments: declining public sector employment continues to undermine private sector employment gains. The greater of the public sector deficits appears to be a lack of leadership as few politicians have stepped up with proposals to get the cost of government, primarily retirement and health care costs, under control. The artificially inflated government payrolls due to the deficit-financed federal “stimulus”, is over. This drag on growth will remain for the foreseeable future. • Weak housing market: housing conditions remain poor with declining home prices and historically low housing starts. High foreclosure levels, negative home equity, and declining home prices continue the weak consumer spending levels. Commercial Real Estate Implications • Sales volume: relative to other asset classes, CRE returns remain attractive and should drive sales volumes above those of 2011. The economic outlook and credit conditions will play an integral role in the sales volume ultimately achieved. The CRE market is tri-furcated: the best, the distressed and the rest. Core assets, the best, represent a relatively small portion of CRE. There is no near term incentive to dispose of these recently acquired safe harbor assets. There will continue to be a supply shortage. Lenders are disposing of distressed assets at an increasing pace. Numerous banks, however, are limited by their capital levels to absorb losses. An improving CRE market will drive distressed sales volume. The majority of properties are in “the rest” category. Absent Pictured Above: 1400 Opus Place in Downers Grove, part of the 3-property Executive Towers West office park purchased by The Blackstone Group in December debt related issues forcing a sale or recapitalization, owners are holding out for better pricing. Strong job growth will open up this category. Investment Market Review • U.S. political gridlock: the S&P downgrade of the U.S. sovereign debt rating is symptomatic of the gridlock within The Beltway. This ongoing gridlock has taken a toll on consumer confidence as there is little faith that both parties in Congress are capable of putting aside their political differences to address the anemic economic growth. Long term investment decisions have been put on hold as the rules of the game are unclear. • Property markets: risk adverse investors, looking for secure cash flows, have driven demand for core assets in first tier markets. The demand for core assets far exceeds the supply as recent core investors are likely to be long term holders. In the search for consistent yield, investors will be forced to consider secondary and possibly tertiary markets. Economic volatility may temper a movement into these markets. Early in the recovery, it’s still about risk and return. Investors should at a minimum consider secondary markets with favorable growth prospects. • Debt markets: financing conditions should improve. Life insurance companies have been the consistent source of debt for large loans secured by core assets. Critical to regaining liquidity in the CRE debt markets, however, is the recovery of the CMBS market. Spread volatility following the Euro crisis and the U S debt ceiling debate greatly diminished the appetite of originators to undertake execution risk. Recent CMBS originations appear to have been better underwritten with wider spreads and been well received. Smaller regional banks continue to wrestle with non-performing loans and the resulting liquidity/reserve issues. Most national and an increasing number of regional banks have resumed CRE originations. Expect to see more debt funds as a new source of capital: first mortgages and mezzanine debt. More than $1.5 trillion in commercial mortgage debt matures in the next five years. Much of this debt is underwater which may prolong the CRE recovery. • Equity markets: The supply of equity greatly exceeds the availability of targeted properties. The REIT recovery preceded the recovery of the CRE market in part due to access to the debt and equity capital markets which allowed them to de-lever their balance sheets and market strategic acquisitions. REITs enjoyed attractive returns in 2009 and 2010. NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 71 The Metro Chicago Perspective In analyzing investment activity in Metropolitan Chicago, we have used annual data as opposed to the quarterly data in the national overview due to fewer transaction data points. In the chart below, we put the timing and magnitude of the changes in sales volume in this cycle into perspective by property type since 200. The peak, the crunch, and the crisis are clearly shown with aggregate sales volume declining 89% from peak to trough versus the national decline of 93% - a strong correlation to the national market. The chart below shows average cap rates by property type beginning in 2001. As expected, there is a strong correlation between increasing sales volume and decreasing cap rates. Again, the numbers are skewed by core transactions especially given the lack of non-core assets with stabilized rent rolls that have sold. Average Capitalization Rates by Property Type - Metro Chicago 10% 8% Annual Sales Volume by Property Type - Metro Chicago $20 Billion Retail 6% Office Industrial $15 Billion Industrial Multifamily Multifamily 2010 2009 2008 2007 2006 2005 2004 4% Source: NAI Hiffman 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 $0 2003 $5 Billion 2002 2001 $10 Billion Retail Office Source: NAI Hiffman The chart below details the annual number of properties sold beginning 2001, a sign of liquidity in the market. Sales transaction volume for 2006 and 2007 was 962 and 919, respectively, a 4.5% decrease, versus a 6.5% increase in sales volume over this time period indicating an increase in average sales prices. The Metro Chicago peak-to-trough decline from 2007 to 2009 was 77%, 919 to 213 properties sold. Optimism has returned to the investment arena as the availability of debt and equity improves, interest rates remain favorable and property markets stabilize. Core assets, however, which represent an estimate 15% of the commercial real estate market, can drive the market recovery only so far. For the recovery to continue, the bid/ask spread for the balance of the market must narrow, spurred in part by an improving economy. Number of Properties Sold Annually - Metro Chicago 1,000 Retail Office 800 Industrial Multifamily 600 400 200 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 0 Source: NAI Hiffman Pictured Above: The Shoppes at Gregg’s Landing, a retail shopping center located at 1720 N Milwaukee Avenue in Vernon Hills, purchased for about $252.00 PSF in late 2011 NAI Hiffman Market Review & 2012 Forecast Industrial Investment Review a stabilized basis for the offerings in highest demand. Looking Back: Following two years of lackluster volume, industrial investment activity for 2011 more than doubled the amount of sales witnessed throughout the previous year as a strong appetite for Class A industrial assets among investors pushed up prices not experienced since the peak of the market in 2007. Buyers entered the year seeking well-located, quality industrial properties with no or very limited vacancy risk. With property market fundamentals slowly improving and no new speculative construction to compete with the current stock, investors pushed down yields for the best assets. Looking Forward: The year ahead will no doubt produce plenty of news headlines that will cause brief periods of volatility in our capital markets, although we expect that borrowing rates will remain at current levels throughout 2012. Sovereign debt problems in Europe are not going away, the US Congress will continue to debate how to best address our own fiscal problems and we will elect our next president. With all these factors combined, we expect the 2012 economy to look very similar to 2011 – slow, but positive growth. Overall volume for the year totaled approximately $1.3 billion, which is about average for the Chicago market looking back over the past ten years. What was unique about the past year was the high percentage of portfolio sales. While portfolio sales historically account for one-third of overall transaction volume, the past year saw approximately 70% of total industrial investment sales volume concentrated within institutional-quality portfolios sold to investors. Two main factors contribute to the increase in portfolio activity. First, the capital markets were in disarray for most 2009 and 2010, limiting the amount of debt buyers could obtain at attractive terms and causing a backlog of properties slated for disposition. Second, the property market fundamentals needed to stabilize before investors could be confident that rental rates would find a floor and growth expectations could once again be plugged into their models. Improvement in the debt markets and stabilizing rental rates allowed for more fluid pricing and drew sellers off the sidelines that had been idle for the all of 2009 and much of 2010. With demand among investors focused on the best quality assets, capitalization rates for those assets quickly compressed to levels not witnessed since 2007, getting down around 6% on Largest Industrial Investment Sales 2011 Buyer Seller Total SF Heitman Northern Builders 2,320,948 Stockbridge Interstate Partners 2,150,000 IIT H.S.A./Bridge Capital Partners 1,434,649 TA Associates Realty IDI 1,196,470 Pictured Above: 443 Fort Hill Drive in Naperville, a 368,407 SF building that was part of Heitman’s portfolio purchase totaling 2,320,948 SF in May of 2011 Industrial Indvestment Review Industrial Investment Review The property fundamentals will continue to improve as the lack of any measureable speculative development allows for a continuation in the vacancy rate decline and a gradual increase in overall rental rates. We expect more class “B” quality assets to be marketed for sale as large owners seek to streamline their portfolios and attempt to capitalize on the increasing demand for industrial assets in the Chicago market. The vacancy rate in the O’Hare submarket has declined roughly 150 basis points over the past year and rents have stabilized and even increased for better quality assets. We believe investment activity within the O’Hare submarket will increase due to the improving fundamentals and the limited amount of construction on the horizon. Very few class “B” quality assets traded hands in 2011, so it is difficult to identify pricing trends coming into 2012. However, the few properties that did transact appeared to show a significant spread between the yields being paid for class “A” product versus class “B”. We expect this spread to narrow in 2012 as investors pursue higher-yielding assets to offset some of the lofty prices paid last year. Improving property fundamentals should also provide some confidence for investors looking to take on a little more risk. Throughout 2011 debt became increasingly available for core properties and investors capitalized on this availability, driving up prices and compressing yields. The big question moving forward will be how much debt will be available for the class “B” assets expected to come to market in the first quarter. Our expectations are that sellers will have to offer a mix of class “A” and “B” quality assets in order for investors to obtain acceptable debt terms and in turn pay acceptable prices to sellers. NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 73 Office Submarket Map Airport 173 45 Fox Lake Waukegan Regional Airport 8 83 Gurnee Waukegan McHenry Grayslake 12 120 1 West Loop Central Business District 173 41 120 21 2 Central Loop 3 East Loop 4 North Michigan Ave. 5 River North 43 11 176 Libertyville 176 60 Crystal Lake Lake Forest Vernon Hills 60 45 Lake Zurich 41 83 7 22 22 Buffalo Grove Highland Park 12 Deerfield 21 25 31 Northbrook Palatine Dundee Chicago Executive Airport 53 72 90 Arlington Heights 10 Elgin 59 20 South Elgin Hanover Park Bloomingdale Dupage Airport 9 Skokie Park Ridge 11 Central Northwest 12 Far Northwest 14 Eastern E-W Corridor 15 Western E-W Corridor 90 90 94 Elmhurst 355 38 10 Schaumburg Area 41 Franklin Park Addison Carol Stream 8 Far North 16 I-55 Corridor 290 64 83 Lombard 290 14 15 38 294 59 55 55 88 53 Downers Grove Westmont Naperville Aurora Chicago CBD (Central Business District)90 Burr Ridge 34 Chicago Midway Airport Darien 30 171 Chicago Ave. 16 25 31 41 94 Oak St. 90 Bolingbrook 294 5 Ohio 43 St.12 4 State St. North Aurora 6 Niles Wood Dale 25 7 Central North 13 O’Hare Area Evanston Int'l Airport 31 St Charles 13 Elk Grove Village 53 64 Glenview Des Plaines Schaumburg 9 North DuPage East-West 20 Hoffman Estates 94 294 6 Near North Northwest Suburban 12 North Suburban 94 20 355 © 2009 NAI Hiffman 3 1 94 r. Randolph St. Michigan Ave. 355 Halsted St. 55 Wacker D 57 50 83 94 Wells St. Romeoville 20 Oak Lawn Wacker Dr. 90 41 12 2 Harvey 6 290 294 80 Industrial Submarket Map 14 12 20 Beloit Westosha Airport Wisconsin Illinois 1 Chicago North Pleasant Prairie 2 Chicago South 3 North Cook 173 173 75 Zion 41 45 173 47 51 Fox Lake 76 4 West Cook Waukegan Regional Airport 90 5 Southwest Cook 83 6 South Cook 14 Waukegan McHenry 23 Grayslake 12 120 7 I-57/Will Corridor 120 21 43 13 Rockford 8 Lake County 94 8 9 Northwest Cook 23 Belvidere Cherry Valley 20 19 Mundelein 176 176 176 10 O’Hare 60 Crystal Lake Lake Forest Vernon Hills 60 11 Central DuPage 45 Lake Zurich 41 83 12 I-55 Corridor 22 22 43 Buffalo Grove 90 12 Highland Park 13 McHenry County 21 25 31 Hampshire 72 39 Northbrook Dundee 9 14 23 90 18 20 South Elgin 15 Fox Valley 3 Morton Grove Des Plaines Schaumburg 59 14 I-90 Northwest 94 294 Arlington Heights 72 Elgin 64 Chicago Executive Airport 53 Glencoe Niles Streamwood Elk Grove Village 16 I-88 Corridor Evanston vvans nnston Skokie Park Ridge Ohare 31 25 Bloomingdale DeKalb elle 64 10 Wood Dale 290 Bensenville 64 Geneva West Chicago 38 Carol Stream 11 Elmhurst 83 294 Sugar Grove Naperville 16 Aurora 30 Hinsdale 59 88 53 30 Downers Grove Woodridge Burr Ridge Montgomery 30 Westchester 31 5 55 55 Bedford Park Willow Springs 12 30 34 51 Plainfield 55 2 294 83 57 Palos Heights Romeoville 39 90 94 Blue Island 6 171 East Chicago Gary/Chicago Airp 355 355 Hammond Hazel Crest Tinley Park 71 41 Chicago Midway Airport Oak Lawn Bolingbrook 47 Chicago Cicero La Grange 59 25 21 Northwest Indiana 290 38 North Aurora 20 Southeast Wisconsin 4 Melrose Park Batavia 19 1 Franklin Park Dupage St CharlesAirport 15 38 18 DeKalb County 19 I-39 Corridor 53 47 17 I-80/Joliet Corridor 30 52 Joliet 30 Munster 1 80 Mokena Matteson 21 New Lenox 52 30 Park Forest 17 80 94 394 53 Minooka La Salle Ottawa 50 7 1 45 6 © 2009 NAI Hiffman Monee Elwood Indiana 6 Illinois 80 52 Seneca 57 53 NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 75 NAI Global From Chicago to Shanghai, from leasing to logistics, leverage our global network to your advantage. NAI Global is the largest network of independent commercial real estate firms worldwide, comprised of over 5,000 professionals in 55 countries with more than 350 offices. NAI advisors work in tandem with our global management team to ensure our clients strategically optimize their real estate assets. NAI offices complete over $45 billion in combined transactions annually and manage 300+ million square feet of commercial space. NAI Global has received top industry rankings: Ranked #2 brokerage network by Commercial Property News Ranked #3 brokerage organization by Real Estate Forum Ranked #4 Lipsey’s Top 25 Real Estate Brands NAI Global is based in Princeton, New Jersey. A dedicated 70-person staff, strategically positioned around the world, provides management, technology, marketing and corporate services support to its network of real estate offices. Global Office Locations by Country ASIA PACIFIC Australia China India Indonesia Japan South Korea Malaysia New Zealand Philippines Singapore Taiwan LATIN AMERICA & THE CARRIBEAN Argentina Bahamas Brazil Chile Costa Rica Jamaica Panama Peru Venezuela NORTH AMERICA Canada Mexico United States EUROPE, MIDDLE EAST & AFRICA Austria Belgium Bulgaria Czech Republic Denmark Finland France Germany Greece Iceland Israel Kazakhstan Kuwait Latvia Norway Qatar Republic of Serbia Romania Russian Federation South Africa Spain Sweden Switzerland Turkey Ukraine United Kingdom Methodology The information included in this review is the result of a compilation and analysis of data from various sources on class A, class B and class C industrial properties located in the metropolitan Chicago area defined by the submarket map on the previous page. NAI Hiffman obtained the information from property representatives, CoStar Group, RealCapital Analytics, industry periodicals and magazines, our in-house property database, and other sources. NAI Hiffman greatly appreciates the participation of each of these individuals, companies and resources, without whose help this review would not have been possible. All of the information detailed throughout this review is saved and organized in our own in-house database and is regularly updated. Utilizing this database, we can analyze, calculate and report demographic information, inventory, vacancy, availability, net absorption, and transactional information. Definitions Net Absorption The net change in occupied space in a given market between the current measurement period and the last measurement period. Net absorption can be either positive or negative and must include decreases as well as increases in inventory NAI Global / Methodology & Definitions Methodology & Definitions levels. For the purpose of this review, sublease space is included in the calculation of net absorption. New Supply The total inventory delivered to the market since the last measurement period. Delivered is defined as total square footage and/or number of buildings that has completed construction and received a certificate of occupancy during a stated period. Under Construction Buildings where either: a) actual ground breaking has occurred (site excavation or foundation work) and construction is ongoing (not abandoned or discontinued) but for which a certificate of occupancy has not yet been issued; or b) properties The NAI Hiffman Market Reviews track several measures of market undergoing conversion to office from another use or conditions. This information is collected for individual properties c) properties undergoing a major renovation where then consolidated, organized and analyzed for submarket and 75 percent or more of the building is not available for market totals. These terms, used throughout the reviews, are lease and building generally requires a certificate of defined below according to NAIOP Terms & Definitions. occupancy to be made available for lease. Total Inventory (Market Size) The total square footage of gross Available Space The total amount of space that is rentable area in a specific market. It includes the gross rentable currently being marketed as available for lease in a area in buildings that have received a certificate of occupancy. given time period. It includes space that is available, Total inventory increases when a new building is delivered and regardless of whether the space is vacant, occupied, decreases when an existing building is destroyed, demolished or available for sublease, or available at a future date. its use changes. Available space excludes shadow space. Vacancy Rate A measurement expressed as a percentage of Shadow Space That portion of leased space which the total amount of vacant space divided by the total amount of is vacant but not available space. Shadow space is inventory. Vacant space is inventory that is not currently occupied. difficult to measure. (Synonym: phantom space) NAI HIFFMAN METROPOLITAN CHICAGO MARKET REVIEW & 2012 FORECAST 77 NAI Hiffman The Power of Local Knowledge. NAI Hiffman is the largest full service, privately-owned commercial real estate brokerage and management company in the Chicago region. With over 150 brokers and employees, NAI Hiffman is dedicated to providing our clients with the most comprehensive real estate services. Our clients come to us for our deep local knowledge and they build their business on the power of our global managed network. 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