mb real estate's 2013 1st quarter chicago market overview

SECTION #

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FIRST QUARTER 2013 | CHICAGO MARKET OVERVIEW 1

CENTRAL BUSINESS DISTRICT

2013 CHICAGOMARKET OVERVIEW

F I R S TQ U A R T E R

2013

CHICAGOMARKET OVERVIEW

MARKET OVERVIEW

FIRST QUARTER

2013

The Chicago Market Overview is published quarterly by MB Real Estate.

To obtain additional copies or for further information, please contact:

SCOTT MASONResearch Coordinator

181 West Madison Street, Suite 4700

Chicago, Illinois 60602

(312) 726-1700

w w w . m b r e s . c o m

TABLE OF CONTENTS SECTION ONE

CHICAGO ECONOMY

01 Economic Analysis

SECTION TWO

CHICAGO CENTRAL BUSINESS DISTRICT

02 Chicago CBD Executive Summary

SUPPLY

03 New Development 04 Sublease Space 05 Large Blocks of Direct Availabil i ty

DEMAND

06 Vacancy Rates 07 Large Deals 08 Absorption

FEATURES

09 Lease Comparables 10 Investment Sales11 Forecast12 Submarket Map13 Market Statist ics

SECTION THREE

SUBURBAN CHICAGO

14 Suburban Chicago Executive Summary

SUPPLY

15 New Developments16 Sublease Space 17 Large Blocks of Direct Availabil i ty

DEMAND

18 Vacancy Rates19 Large Deals20 Absorption

FEATURES

21 Gross Asking Rents22 Investment Sales23 Forecast24 Submarket Map25 Market Statist ics

SECTION FOUR

ADDITIONAL INFORMATION

26 Glossary27 About MB Real Estate


SECTION ONE

CHICAGO ECONOMYECONOMIC ANALYSISDespite lingering uncertainty surrounding the fiscal health of Illinois, Chicago’s economy showed signs of a strengthening recovery as total non-farm employment levels increased 1.2 percent on a year-over-year basis. Significant gains in office-using industries comprised much of the increase in employment. Since January 2010 the Chicago-Naperville-Joliet MSA Professional and Business Services sector has grown 2.8 percent, adding over 71,000 jobs. The Financial Activities industry has slowly begun to recover, experiencing year-over-year job growth above 1.5 percent for the first time since 2006. The Construction industry is still struggling to recover jobs shed since the recession, but hiring has improved as February saw the largest one month gain, 46,000 jobs nationally, in nearly six years and should continue to strengthen as summer arrives and activity increases.

One of the strengths of the local economy is Mayor Emanuel’s campaign to attract companies to Chicago’s Central Business District (CBD). Two years into his term, Mayor Emanuel has announced the relocation or expansion of nearly 85 companies within Chicago. Clayco recently announced that it would relocate its national headquarters and 300 jobs to downtown Chicago from St. Louis. Motorola Solutions announced that it would add 300 jobs throughout the CBD in 2013. Most recently announced, Coeur d’Alene Mines Corp will bring over 100 jobs to the CBD when they move their headquarters during the third quarter.

While these job announcements are positive developments and highlight the cautiously optimistic outlook many employers hold for the near future, the net effect is tempered with many companies right-sizing and occupying less space per square foot per employee. Even so, Manpower, a workforce solutions agency, released a survey in which 19 percent of Midwest employers anticipated increasing headcounts in the second quarter of 2013, compared to only 5 percent anticipating a decrease. The survey concludes that a net 12 percent of employers will grow their workforce, just a 1.0 percent improvement on the previous quarter’s outlook. On a positive note, Professional and Business Services, an office-intensive sector, had the second-highest hiring expectations with 24 percent of employers planning to increase their headcounts as opposed to just 4 percent predicting a decrease.

In a state dealing with financial woes, Chicago, as judged by Moody’s Economy.com, is one of the few cities whose economy is considered to be “firmly in recovery.” To further highlight this, Economy.com reported that for the first time in almost a year, less than half of Chicago’s private industries are contracting. Chicago benefits from being the major business, distribution, and financial hub of the Midwest. It also has a large talent pool, strong educational institutions, and relatively high per capita income. Despite this, Economy.com cites that fiscal issues, infrastructure in need of repair, and below-average population growth are preventing a more robust recovery.

While uncertainty remains in the state of Illinois, numerous improving indices point towards continued job growth in Chicago, albeit at a slower pace than recoveries in the past. Total employment in the Chicago MSA fell 7.4 percent peak-to-trough and has only rebounded 4.1 percent since its low point in December 2009. Compared to the 2001 recession, total employment during the most recent recession fell further and has been markedly slower to recover. For the Chicago office market to experience significant improvement, the mayor’s office will need to continue its pursuit of relocations to Chicago and expansions of existing companies along with more aggressive job creation. MBRE’s baseline forecast expects modest positive absorption over the next two years, resulting in a slowly declining vacancy rate.Sources: MBRE Research, AGC of America, BLS, Chicago Tribune, Crain’s Chicago Business, World Business Chicago, Moody’s Economy.com

CHICAGO ECONOMIC ANALYSIS

4.59 4.57

4.39

4.23

4.54

4.40

4.0

4.1

4.2

4.3

4.4

4.5

4.6

4.7

2001 Recession 2008-2009 Recession

Chic

ago

MSA

Tot

al N

on-fa

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mpl

oym

ent

(milli

ons,

SA)

Peak Employment Trough Employment Employment 38 months post-trough

01/01 10/03 12/06 01/08 12/09 02/13

-4.4% +3.3%

-7.4%+4.0%

CHICAGO EMPLOYMENT WELL BELOW PEAK AND RECOVERING SLOWLY


SECTION TWO

CENTRAL BUSINESS DISTRICTEXECUTIVE SUMMARYFollowing a three quarter period during which occupancy increased by 911,000 square feet, the CBD experienced only 21,000 square feet of positive absorption in the first quarter. The demand seen thus far this year has been consistent with MBRE’s baseline forecast of a modest recovery in the near term.

Key Indicators:• Direct vacancy declined less than 10 basis points, falling just below 15.1 percent. Class A buildings were the only segment to experience net positive

absorption. The East Loop outperformed the overall market and was one of two submarkets to experience positive absorption in all building classes.

• No new developments were announced this quarter. Hines broke ground on its 45-story, 900,000 square foot tower at 444 West Lake with completion slated for mid-2016. There are 11 sites that have been actively marketed to prospective anchor tenants.

• The West Loop continues to be the most active submarket for large users with six leases over 20,000 square feet signed during the quarter. In addition, McDermott Will & Emery has signed a letter of intent to anchor 225,000 square feet in the new development at 444 West Lake.

• In contrast to recent quarters, Class A rental rates for new transactions decreased 2.0 percent on a year-over-year basis. Concessions were mixed, average tenant improvement allowances fell 9.2 percent while average rent abatement increased by 1.0 percent.

• Underutilized space remains the biggest concern to the outlook of the market as tenants such as the law firm Winston & Strawn look to right-size their space requirements. Other risks include: increased national and state tax rates; residual effects of the Eurozone crisis; shrinking space requirements per employee; reduced storage needs due to digital archiving; reduced server space needs due to cloud computing; and increased health care costs.

• Potential upsides to the outlook include: the increased trend of businesses relocating to the CBD, rapidly expanding tech firms, a tightening market with no new supply expected until at least 2016, and increased corporate confidence.

Four straight quarters of positive absorption and increased investment activity bodes well for the market. That said, a struggling Class C market coupled with underutilized space and slow job growth continues to hamper the recovery. As such, MB Real Estate’s baseline forecast predicts modest positive absorption, resulting in a slight decline in vacancy over the next two years.

CHICAGO ECONOMIC ANALYSIS

Direct Vacancy1Q2013

AChange from

4Q2012B

Change from 4Q2012

CChange from

4Q2012Total

Change from 4Q2012

Central Loop 9.2% 0.2% 16.1% 0.3% 17.1% 1.4% 13.8% 0.6%East Loop 15.5% -2.3% 24.2% -0.5% 14.2% 0.0% 19.0% -0.7%N. Michigan Ave. 17.1% -0.7% 24.7% 1.4% 20.1% 0.3% 20.8% 0.3%River North 9.8% -1.4% 6.2% 0.4% 9.7% -0.1% 8.8% -0.3%South Loop 27.9% -1.8% 24.0% -1.2% 25.8% -1.5%West Loop 14.0% -0.5% 11.3% 0.5% 17.4% 1.6% 13.9% 0.0%CBD Chicago Total 13.1% -0.6% 17.1% 0.3% 15.9% 0.7% 15.1% 0.0%

Net Absorption1Q2013

A B C Total

Central Loop (32,312) (29,491) (116,136) (177,939)

East Loop 93,566 76,447 6,996 177,009

N. Michigan Ave. 31,239 (53,942) (34,652) (57,356)

River North 53,842 13,412 (18,335) 48,919

South Loop 18,513 6,044 24,557

West Loop 158,864 (46,916) (106,593) 5,354

CBD Chicago Total 323,712 (40,491) (262,677) 20,544

CBD VACANCY AND YEAR-END ABSORPTION SUMMARY

Numbers in parentheses are negative

NEW DEVELOPMENTGround broken on the first new development since 2009

• No new developments were formally announced this quarter. Hines has broken ground on its 45-story, 900,000 square foot building at 444 West Lake and is looking to continue leasing after agreeing to terms with McDermott Will & Emery. The developer obtained $300 million to construct the building from Montreal-based Ivanhoe Cambridge and an additional $29.5 million from the City of Chicago for a surrounding park. Completion is still slated for mid-2016.

• Prompting the construction at 444 West Lake and increased speculation at other West Loop development sites is the constraint on large, contiguous spaces. There are currently 12 tenants touring the market for requirements of at least 100,000 square feet. Such tenants have limited relocation options, as only 10 contiguous blocks of Class A space greater than 100,000 square feet are currently available.

• Just west of the CBD’s official boundaries, Sterling Bay is redeveloping a 545,000 square foot former cold storage facility at 1000 West Fulton. The project, dubbed 1K Fulton, is scheduled to be completed in the first quarter of 2014. SRAM became the building’s first tenant by preleasing 77,000 square feet.

• MB Real Estate has identified 11 proposed new developments ranging from 350,000 to 1.3 million square feet. Many of these projects will require at least 60 percent preleasing, but Hines has demonstrated that construction can move forward without traditional financing.

• OUTLOOK: The amount of new construction will be fueled by the number of large tenants seeking trophy space and the availability of large blocks of Class A space. A smaller development has the potential to be delivered before 444 West Lake. By 2016, demand is expected to be great enough to warrant new office developments.


CENTRAL BUSINESS DISTRICTSUPPLY

NEW DEVELOPMENT



2000 - 2013 INVENTORY ADDITIONS % Leased (Avg)

2000 - 5 Properties 2,870,576 sf 95.8%2001 - 2 Properties 904,436 sf 86.9%2002 - 2 Properties 2,236,364 sf 94.6%2003 - 0 Properties 0 sf 0.0%2004 - 1 Property 1,300,000 sf 100.0%2005 - 2 Properties 2,500,143 sf 97.4%2006 - 2 Properties 1,320,498 sf 96.9%2007 - 0 Properties 0 sf 0.0%2008 - 2 Properties 728,254 sf 70.6%2009 - 3 Properties 3,652,913 sf 81.4%2010 - 1 Expansion 933,710 sf 92.9%2011 - 0 Properties 0 sf 0.0%2012 - 0 Properties 0 sf 0.0%2013 - 0 Properties 0 sf 0.0%

Total - 20 Properties 16,446,894 sf

UNDER CONSTRUCTION/ANNOUNCED % Leased

444 West Lake 900,000 sf 25.0%

Total 900,000 sf

2000-2013 INVENTORY ADDITIONS

Delivered (2000-2012) 16,446,894 sfDelivered (2013) 0 sf

Total 16,446,894 sfUnder Construction/Announced 900,000 sfProposed Inventory 4,922,564 sf

Total 5,822,564 sf

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

(2,000,000)

(1,000,000)

0

1,000,000

2,000,000

3,000,000

4,000,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD2013

New Construction Delivery (square feet) Absorption (square feet) Direct Vacancy Rate %

NO NEW DELIVERIES EXPECTED UNTIL 2016

SUBLEASE SPACESublease availability expands even as the sizes of large blocks dwindle

• The amount of total available sublease space increased by 51,000 square feet since last quarter. At 3.3 million square feet, total sublease availability remains below its historical average of 3.6 million square feet.

• One large sublease block was removed during the quarter at 100 North Riverside due to a 5,000 square foot lease, while one was added. A large, long-term sublease is now available within Winston & Strawn’s space at 35 West Wacker. The law firm recently downsized and is seeking a subtenant for 75,000 square feet through December 2024.

• Go Health subleased 30,000 square feet from Cap Gemini at 111 North Canal. The health insurance company will occupy the 15th floor and plans to bring 150 jobs to the CBD by the end of 2013.

• OUTLOOK: Companies will continue to reconsider employee headcount and space efficiency, turning to “hoteling” and smaller office sizes, causing sublease availability to fluctuate. Companies such as law firms who traditionally have large space per employee ratios will be especially active in trying to right-size through subleasing.



6,16

4,67

9

5,45

8,62

3

4,46

7,89

0

4,64

4,91

1

3,71

4,18

7

2,37

6,18

4

2,40

4,10

9

3,15

8,56

2

4,20

1,80

1

3,57

6,84

6

2,89

7,71

1

3,21

4,36

5

3,26

5,64

3

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD2013

CLASS ABuilding Address Size (sf) Occupancy Expiration Floor(s) Sublandlord

77 W Wacker Dr 130,968 April 2013 February 2022 11-19 United Airlines131 S Dearborn St 128,622 Vacant October 2017 7-8 Citadel35 W Wacker Dr 75,000 90 Days December 2024 35-37 Winston & Strawn1 N Wacker Dr 65,496 Vacant March 2015 19-20 Merrill Lynch131 S Dearborn St 64,125 Vacant October 2017 10 Citadel111 S Wacker Dr 55,400 30 Days January 2021 45-46 Locke, Lord, Bissell & Liddell111 S Wacker Dr 54,200 Vacant May 2015 37-38 R.R. Donnelley225 W Wacker Dr 51,120 30 Days March 2022 26-27 Edwards Wildman Palmer

Total - 8 Spaces 624,931

CLASS BBuilding Address Size (sf) Occupancy Expiration Floor(s) Sublandlord

225 W Randolph St 238,778 Negotiable December 2022 22-30 AT&T350 W Mart Ctr 126,402 Vacant January 2016 4 AT&T600 W Chicago Ave 117,101 Vacant November 2015 2 Level 3 Communications222 Merchandise Mart Plz 93,799 Negotiable January 2016 5 Career Education Corporation222 N LaSalle St 78,974 Vacant May 2014 17-18 Merrill Lynch205 N Michigan Ave 65,463 30 Days April 2016 5-7 Verizon


LARGE BLOCKS (MORE THAN 50,000 SQUARE FEET) OF SUBLEASE SPACE CURRENTLY AVAILABLE

YEAR-TO-DATE SUBLEASE AVAILABILITY UP SLIGHTLY, BUT BELOW LONG-TERM AVERAGE

Italicized addresses indicate space is new on the market

LARGE BLOCKS OF DIRECT AVAILABILITYAvailability continues to rise in Class B and C buildings

• The number of directly available, contiguous blocks greater than 50,000 square feet increased during the quarter by 2 to 70. Large block availability continued to drop in Class A, while 2 Class B and 1 Class C blocks are newly available.

• The two largest blocks removed during the quarter were the 52,000 square foot block at 525 West Van Buren and the 55,000 square foot block at 225 North Michigan. Smaller leases signed within each block lowered the contiguous availability below the 50,000 square foot threshold.

• The greatest new block is a 131,000 square foot contiguous space at 111 North Canal. The owners of 222 South Riverside are now marketing a 103,000 square foot block that will be available at the beginning of 2014. There are now 7 blocks of at least 250,000 square feet available for lease, one more than the previous quarter with the block at 540 West Madison having increased from 167,000 square feet to 251,000 square feet as Bank of America continues to give back space.

• MB Real Estate has identified 33 tenants actively seeking 50,000 square feet or more in the CBD. However, with 70 blocks available, a glut of space exists in the market. Coupled with the ability to renew, large tenants continue to have a multitude of options.



CLASS ABuilding Address Size (sf) Submarket

515 N State St * 350,906 North Michigan Avenue

500 W Monroe St 338,131 West Loop

200 E Randolph St 306,163 East Loop

233 S Wacker Dr ** 285,994 West Loop

540 W Madison St * 250,553 West Loop

101 E Erie St * 217,569 North Michigan Avenue

440 S LaSalle St * 162,517 South Loop

10 S Dearborn St * 139,165 Central Loop


227 W Monroe St * 103,122 West Loop


455 N Cityfront Plaza Dr 89,854 North Michigan Avenue

30 S Wacker Dr 86,573 West Loop

333 W Wacker Dr 80,736 West Loop

1 S Wacker Dr * 76,114 West Loop

1 S Wacker Dr 74,363 West Loop

77 W Wacker Dr 67,342 Central Loop



980 N Michigan Ave 62,384 North Michigan Avenue

321 N Clark St 61,431 River North

222 W Adams St 59,436 West Loop







28 Blocks 3,478,814

CLASS CBuilding Address Size (sf) Submarket

435-445 N Michigan Ave ** 316,190 North Michigan Avenue


401-465 E Illinois St 210,000 North Michigan Avenue

111 N Canal St 176,520 West Loop


401 S State St 110,898 East Loop

619 S LaSalle St 89,000 South Loop


350 W Mart Ctr * 87,404 River North

350 W Mart Ctr 87,393 River North

360 N Michigan Ave 76,855 East Loop

740 N Rush St 71,501 North Michigan Avenue

33 S State St 70,107 East Loop

350 W Mart Ctr 64,661 River North

104 S Michigan Ave 59,206 East Loop

211 E Chicago Ave 53,052 North Michigan Avenue

16 Blocks 1,907,006

CLASS BBuilding Address Size (sf) Submarket

130 E Randolph St * 256,720 East Loop

410 N Michigan Ave * 214,849 North Michigan Avenue

222 N LaSalle St * 199,132 Central Loop

300 S Riverside Plz * 198,302 West Loop

303 E Wacker Dr 174,125 East Loop

130 E Randolph St * 155,829 East Loop


333 S Wabash Ave ** 112,000 East Loop


222 S Riverside Plz * 103,128 West Loop

1 N Dearborn St 97,261 Central Loop

120 S LaSalle St ** 94,995 Central Loop

200 N LaSalle St 94,875 Central Loop

222 Merchandise Mart Plz 68,829 River North

175 W Jackson Blvd 68,539 Central Loop

175 W Jackson Blvd * 67,794 Central Loop

175 W Jackson Blvd 67,725 Central Loop



233 N Michigan Ave 67,028 East Loop

175 W Jackson Blvd * 65,930 Central Loop



222 N LaSalle St 56,424 Central Loop

303 E Wacker Dr * 52,553 East Loop


26 Blocks 2,752,959

Italicized addresses indicate space is new on the market * Block of space is for future occupancy **Block of space will be vacated in the upcoming quarter


CENTRAL BUSINESS DISTRICTDEM

ANDVACANCY RATESMinimal new demand leads to little change in vacancy rate

The direct vacancy rate in the CBD dropped for the third consecutive quarter, although by only a small margin, falling less than 10 basis points to just below 15.1 percent. However, with this minor improvement, direct vacancy is at its lowest level since 2009.

• Class A buildings, the only class to experience positive absorption, saw its direct vacancy rate fall 60 basis points to 13.1 percent. Class B and C buildings both experienced negative absorption over the quarter, increasing direct vacancy to 17.1 percent and 15.9 percent, respectively.

• River North remains the tightest submarket in the CBD with an 8.8 percent direct vacancy rate, which is down 30 basis points over the previous quarter. The East Loop, and South Loop submarkets, despite experiencing positive absorption during the quarter, both have direct vacancies well above average for the CBD.

• OUTLOOK: MB Real Estate expects some volatility in vacancy rates on a quarterly basis. However, economic trends suggest that vacancy will continue to decline through 2013 as remaining availability in high demand submarkets tightens.



AND

9.8%

11.4

%

13.7

%

14.6

%

15.7

%

17.6

%

14.3

%

11.7

%

11.5

%

15.3

%

16.0

%

15.4

%

15.1

%

15.1

%

8%

10%

12%

14%

16%

18%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD2013

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD2013

Class A Class B Class C

HISTORIC YEAR-END DIRECT VACANCY MARKET BY CLASS: CLASS A VACANCY CONTINUES ITS DESCENT

HISTORIC DIRECT VACANCY: RATE REMAINS UNCHANGED OVER PREVIOUS QUARTER



ANDLARGE DEALSLarge lease activity slows as decision-makers consider new developments

• Plante Moran signed the largest deal of the quarter, consolidating its space at 225 West Washington into its existing space at 10 South Riverside. The public accounting and business advisory firm did not expand their current 85,000 square foot lease at 10 South Riverside, but maintained an expansion option.

• The Suburban to CBD trend continues as the financial services firm, Guggenheim Partners, prepares to move its suburban employees to 227 West Monroe where they signed a 76,000 square foot renewal and expansion on the 7th and 8th floors. Press Ganey, a healthcare consulting firm, will relocate into a 25,000 square foot sublease at 1 North Franklin, moving some operations from the suburbs and Indiana.

• Large lease transactions were muted in the first quarter as companies analyze their space requirements and wait for possible new developments as well as new legislation to finalize. To date, the only leases greater than 100,000 square feet are still in the negotiation phase. The most notable of which are SNR Denton considering a 125,000 square foot expansion/renewal at 233 South Wacker (Willis Tower) and McDermott Will & Emery signing a letter of intent to lease 225,000 square feet at the yet-to-be-built 444 West Lake.

• OUTLOOK: Tenants have shown increased confidence in real estate decision-making as economic fears slowly ease. Large deal activity should pick up through 2013, but several companies evaluating the market are expected to shed space from their current footprint.

LARGE LEASE TRANSACTIONS



AND

NEW

Tenant Type Submarket Building Address Size (sf)

Guggenheim New West Loop 227 W Monroe 75,850CBRE New River North 321 N Clark 60,000Associated Bank New West Loop 525 W Monroe 35,000Responsys New Central Loop 111 W Jackson 24,309Unite Here Union Relo East Loop 218 S Wabash 22,886Total - 5 Deals 218,045

RENEWAL/EXPANSION/SUBLEASETenant Type Submarket Building Address Size (sf)

Plante Moran Cons West Loop 10 S Riverside 85,000Clayco Exp East Loop 35 E Wacker 70,000Belvedere Trading Ren West Loop 10 S Riverside 50,000Truven Health Analytics Ext Central Loop 1 N Dearborn 40,695W.W. Grainger Exp West Loop 500 W Madison 36,577Franczek Radelet Ren West Loop 300 S Wacker 36,113Go Health Sub West Loop 111 N Canal 30,000TIAA-CREF Exp/Ren Central Loop 200 N LaSalle 27,000Spot Trading Ren South Loop 440 S LaSalle 25,673Press Ganey Sub West Loop 1 N Franklin 25,000TechNexus Ren West Loop 200 S Wacker 22,183Total - 11 Deals 448,241

Abbreviations: Cons - Consolidation Cont - Contraction Exp - Expansion Relo - Relocation Ren - Renewal Sub - Sublease



ANDABSORPTIONClass C Buildings drag down the market

• Net quarterly positive absorption totaled 21,000 square feet. Class B, and especially Class C, buildings struggled, combining for net negative absorption of almost 300,000 square feet. Class C buildings have posted positive absorption in only one quarter since 2008.

• Class A buildings drove absorption in the CBD during the first quarter with almost 325,000 square feet in net absorption. This was the second straight quarter in which Class A Buildings had positive absorption of over 200,000 square feet, dropping direct vacancy 50 basis points to 13.1 percent.

• Led by the East Loop’s 177,000 square feet in net positive absorption, each submarket experienced positive absorption except for the Central Loop and North Michigan Avenue. The East Loop and South Loop were the only submarkets to experience positive absorption in its Class C buildings.

• OUTLOOK: Recent repurposing of Class C buildings into hotels, student housing and other alternative uses suggests that demand will grow for the rest of the market as tenants upgrade their space. However, tepid hiring, shrinking workspaces and possible new developments will continue to combat new demand brought to the CBD. MBRE projects positive absorption in 2013.

HISTORIC ABSORPTION BY SUBMARKET: NO LARGE SWINGS IN ACTIVITY



AND

HISTORIC ABSORPTION: SLIGHT POSITIVE ABSORPTION THUS FAR THIS YEAR

(790,475)

(1,144,784)(844,381)

(186,015)

(830,377)

2,665,184 2,566,896

(136,763)

(720,154)(509,999)

913,519

472,780

20,544

(1,500,000)

(1,000,000)

(500,000)

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD2013

(1,000,000)

(500,000)

0

500,000

1,000,000

1,500,000

2,000,000

2006 2007 2008 2009 2010 2011 2012 YTD 2013

Central Loop East Loop North Michigan Avenue River North South Loop West Loop

FEATURES

F IRST QUARTER 2013 | CHICAGO MARKET OVERVIEW 9

CENTRAL BUSINESS DISTRICTLEASE COMPARABLESLandlords struggle to find new equilibrium in stabilizing market

• Class A net rental rates reversed their upward trend and decreased by 2.0 percent for new deals and 6.2 percent for renewals during the first quarter. Concessions as a whole decreased by a larger amount suggesting stability in net effective rates. Average tenant improvement allowances fell by 9.2 percent for new transactions and by 25.3 percent for renewal transactions, down to $4.89 and $2.03 per square foot per lease year, respectively. Average rent abatement increased slightly, 1.0 percent to 0.88 months per lease year, for new deals, and fell 4.3 percent for renewal transactions, down to 0.79 months per lease year.

• Class B initial rates for new transactions are up 5.6 percent and 7.0 percent for renewals. Tenant improvement allowances are mixed, decreasing for new transactions but increasing for renewals. Free rent decreased for both new and renewal, deals down almost 30.0 percent for renewals during the first quarter.

• Initial rates for Class C were mixed, increasing 4.3 percent for new and decreasing 14.5 percent for renewal transactions. However,

there remains a disconnect with respect to demand, as 263,000 square feet of occupancy was lost during the first quarter.

• OUTLOOK: As more building owners look to lease up their buildings in order to sell in a strengthening market, landlords have decreased asking rates while offsetting with less favorable concession packages. This is especially true in the Class A and B segments. Class C buildings, many of which are being converted into hotels, student housing, and other alternative uses have seen asking rates increase as the inventory shrinks and the remaining office product experiences slightly higher demand.

AVERAGE LEASE TERMS ON NEW AND RENEWAL DEALS


CENTRAL BUSINESS DISTRICT

NEW DEALSA B C A B C A B C A B C

2Q2012 - 1Q2013 $19.50 $15.93 $13.86 $34.21 $28.76 $25.71 6.2 6.2 5.2 7.0 6.6 6.2

2Q2011 - 1Q2012 $19.89 $15.08 $13.28 $41.56 $32.08 $22.99 6.8 6.9 5.5 7.7 7.0 5.8

2Q2010 - 1Q2011 $20.04 $15.11 $11.14 $45.39 $25.21 $22.48 8.8 6.6 7.5 8.2 6.6 6.8

2Q2009 - 1Q2010 $19.79 $15.29 $11.97 $39.52 $26.87 $17.74 8.2 6.2 4.4 7.9 6.4 5.6

2Q2008 - 1Q2009 $22.23 $17.04 $13.85 $43.91 $38.87 $32.74 5.2 4.5 4.4 8.6 7.2 7.6

2Q2007 - 1Q2008 $19.40 $15.73 $12.25 $40.56 $38.87 $24.66 4.8 4.4 4.1 7.3 6.7 6.5

2Q2006 - 1Q2007 $18.12 $13.93 $15.39 $49.24 $38.58 $15.19 6.2 5.1 1.9 9.0 7.4 4.8

2Q2005 - 1Q2006 $18.09 $12.67 $10.25 $49.16 $38.58 $26.99 7.2 5.7 4.9 8.9 7.6 7.1

2Q2004 - 1Q2005 $16.67 $12.92 $10.05 $43.12 $42.82 $23.24 7.0 7.2 3.8 10.1 8.7 6.2

2Q2003 - 1Q2004 $17.22 $12.63 $9.43 $40.92 $36.90 $15.89 4.4 5.6 3.1 8.6 8.2 6.2

2Q2002 - 1Q2003 $22.02 $15.34 $11.84 $36.32 $33.66 $27.95 1.6 3.4 1.4 8.1 9.1 6.0

2Q2001 - 1Q2002 $22.65 $16.47 $16.61 $26.88 $27.08 $24.72 1.0 0.3 1.1 7.2 8.4 7.8

2Q2000 - 1Q2001 $21.85 $15.95 $15.42 $26.89 $24.01 $31.82 0.5 0.1 0.1 7.8 6.7 6.1

RENEWAL DEALSA B C A B C A B C A B C

2Q2012 - 1Q2013 $17.85 $15.00 $12.05 $12.60 $9.63 $9.34 4.9 2.9 2.7 6.2 4.2 3.8

2Q2011 - 1Q2012 $19.03 $14.02 $14.09 $14.17 $9.26 $10.70 4.3 4.1 4.1 5.2 4.2 4.6

2Q2010 - 1Q2011 $19.79 $15.24 $10.15 $18.89 $10.56 $7.65 5.8 4.3 5.7 6.1 4.6 4.6

2Q2009 - 1Q2010 $17.91 $15.71 $11.56 $20.64 $10.92 $7.04 6.5 3.4 3.3 6.2 5.1 4.5

2Q2008 - 1Q2009 $21.72 $16.64 $15.36 $22.32 $16.11 $16.49 2.7 3.3 3.0 6.3 5.5 6.7

2Q2007 - 1Q2008 $20.16 $15.58 $13.57 $22.23 $17.28 $21.06 6.1 2.6 2.0 7.4 5.3 7.6

2Q2006 - 1Q2007 $16.07 $13.07 $16.68 $22.14 $17.67 $7.28 4.9 2.9 1.3 6.7 8.4 4.5

2Q2005 - 1Q2006 $16.12 $12.60 $14.39 $24.67 $16.20 $7.45 5.7 1.8 0.0 8.2 6.5 5.4

2Q2004 - 1Q2005 $16.44 $13.07 $10.12 $22.75 $22.50 $8.23 3.5 3.9 0.9 8.1 7.7 5.1

2Q2003 - 1Q2004 $18.54 $13.59 $10.27 $23.36 $16.99 $8.93 2.0 3.1 1.5 8.7 7.0 6.3

2Q2002 - 1Q2003 $22.24 $14.64 $14.50 $16.71 $13.88 $8.20 0.7 1.3 0.3 7.5 7.1 3.5

2Q2001 - 1Q2002 $22.53 $16.54 $12.16 $11.18 $6.05 $3.70 0.2 0.2 0.0 6.2 7.7 3.5

2Q2000 - 1Q2001 $22.43 $16.71 $15.82 $8.05 $11.19 $5.59 0.0 0.0 0.0 4.8 6.2 3.8

AVERAGE NET INITIAL RATE

AVERAGE NET INITIAL RATE

AVERAGE ABATEMENT(MONTHS)

AVERAGE TERM(YEARS)

AVERAGE ABATEMENT(MONTHS)

AVERAGE TERM(YEARS)

AVERAGE TENANT IMPROVEMENT

AVERAGE TENANT IMPROVEMENT

*Lease metrics are compared on a four-quarter basis instead of calendar year, allowing full years of data comparison.

INVESTMENT SALESBullish investment market continues into 2013

• Investment activity remains strong in 2013 as five buildings have traded with another five under contract to be sold.

• The largest transaction during the quarter was Metlife’s purchase of 550 West Washington for $111 million. The purchase price equals $298 per square foot, translating to a 6.5 percent in-place capitalization rate. Beacon Capital Partners, the seller, bought the building as part of a four building portfolio in 2006 totaling $438 million. Its largest tenant, the Chicago Mercantile Exchange, currently leases 66 percent of the building with a 2023 expiration date.

• Mirae Asset Global Investments, a South Korean firm, recently agreed to purchase the 651,000 square foot building at 225 West Wacker for a reported $218 million. The core plus property is under contract at a purchase price equating to a capitalization rate of 5.5 percent, which is well below the average rate recently seen for similar downtown propertie.

• OUTLOOK: The first quarter of 2013 saw three fewer transactions compared to the first quarter of 2012. However, with 7 buildings totaling over 4.3 million square feet being placed on the market in the first quarter alone, we expect 2013 investment volume to match, if not exceed, what was seen in 2012.


CENTRAL BUSINESS DISTRICTFEATURES

Building Address Sale Date Size (sf) Price Price per sf * Class Seller Status (Buyer or Listing Agent)

311 S Wacker New On Market 1,300,000 $320,000,000 $246 AShorenstein Properties & Fremont Realty

Marketing

161 N Clark New On Market 1,100,000 $348,000,000 $316 ATishman Speyer Properties L.P.

Marketing (Eastdil Secured)

190 S LaSalle New On Market 798,782 $192,000,000 $240 A CBRE Global Investors Marketing (Eastdil Secured)125 S Clark New On Market 494,967 B Chicago Public Schools Marketing360 N Michigan New On Market 260,000 $45,000,000 $173 C Joseph Chetrit Marketing400 S Jefferson New On Market 230,000 $100,000,000 $435 A Sterling Bay Companies Marketing (Eastdil Secured)216 W Jackson New On Market 176,622 $25,000,000 $142 C Farbman Group Marketing (HFF)300 N LaSalle (Up to 49% Stake)

On Market 1,302,901 A KBS REIT 2 Marketing (HFF)

875 N Michigan (office, parking garage)

On Market 856,000 $214,000,000 $250 AJV Deutsche Bank & NorthStar Realty

Marketing (CBRE)

225 W Randolph On Market 853,250 $275,000,000 $322 B Kushner Companies Marketing (HFF)122 S Michigan On Market 512,369 C Ivor Braka Marketing (Jones Lang LaSalle)555 W Monroe On Market 419,000 $150,000,000 $358 A Principal Global Marketing (CBRE)20 S Clark On Market 363,657 $60,000,000 $165 B M & J Wilkow Marketing (Jones Lang LaSalle)208 S LaSalle (Office/Retail)

On Market 355,411 $70,000,000 $197 C Michael Reschke Marketing (HFF)

625 N Michigan Ave On Market 349,409 $83,500,000 $239 BLone Star Funds / Anglo Irish Bank

Marketing (HFF)

332 S Michigan On Market 319,401 C Ivor Braka Marketing (Jones Lang LaSalle)55 E Washignton (Floors 1-12)

On Market 192,000 C Morgan Reed Group Marketing (CBRE)

540 N LaSalle On Market 65,100 $8,500,000 $131 C Joseph Lagoa Marketing (CBRE)130 E Randolph 1,192,357 B180 N Stetson (Partial Stake)

976,137 A

225 W Wacker Under Contract 650,812 $218,000,000 $335 AJ.P. Morgan Chase & Co. Pension Fund

Mirae Asset Global Investments / JLL

205 W Wacker Under Contract 263,650 $29,000,000 $110 C 205 Chicago Partners Undisclosed / HFF32 W Randolph Under Contract 226,666 $13,250,000 $58 C David & Barbara Kalish Undisclosed / CBRE

111 W Washington 1st Qtr 2013 580,000 $94,630,000 $163 CHarbor Group International

Alliance Partners HSP (East Coast arm of Shidler Group)

550 W Washington 1st Qtr 2013 372,000 $111,000,000 $298 A Beacon Capital Partners MetLife / Eastdil Secured

770 N Halsted 1st Qtr 2013 175,000 $10,900,000 $62 CHoward Ellman/River West Management

South Street Capital

123 W Madison 1st Qtr 2013 79,039 $4,850,000 $61 CCanadian Imperial Bank of Commerce

Cagan Management Group Inc.

224 N Des Plaines 1st Qtr 2013 76,900 $7,700,000 $100 CWells Fargo Bank (Foreclosure)

South Street Capital

73 W Monroe St 1st Qtr 2013 52,021 $5,575,000 $107 C F & F Realty Company Iconic Development

All Sales 1st Qtr 2013 1,334,960 $234,655,000 $132

$100,000,000 - BentleyForbesMichael Silberberg & Mark Karasick / CBRE

Under Contract

*Price per square foot - based off estimated selling price for new to market buildings

INVESTMENT SALES: MORE CLASS A OFFERINGS COMING TO MARKET

The CBD performed very much in line with MBRE’s baseline forecast. Mixed results throughout the submarkets and modest net positive absorption resulted in a slight decline in vacancy.

The strong correlation between the office and labor market generally means that as job growth picks up or slows down, the office market will similarly improve or deteriorate. Yet the most recent recovery in the Chicago CBD office market has not followed suit. Over the past quarter, the amount of total occupied space reached record highs despite total employment remaining 3.6 percent below its peak level. Some of this disparity can be attributed to firms having more space than their headcounts warrant, which could cause occupancy to decline if those firms decide to downsize. But the CBD has strong demand drivers, most prominently its labor force and business development efforts led by Mayor Emanuel. This has prompted several companies to expand or relocate operations downtown, offsetting occupancy losses due to downsizing. In addition, tech companies will continue to expand their presence, highlighted by Google’s 15-year, 572,000 square foot lease signed last year at the Merchandise Mart.

In spite of the recent relocations into the CBD, multiple factors are working to slow the mentioned demand drivers. Firms who are decreasing space per employee requirements have turned to alternative workplace strategies such as hoteling. They have also been able to reduce their square footage upon lease expirations with the advent of cloud technology and the digitalization of archives. Chicago’s unemployment rate remains extremely high; at 11.3 percent it is well above the national average of 7.7 percent. Considering these factors, MBRE forecasts modest positive absorption over the next two years, causing direct vacancy to fall approximately 100 basis points by the end of 2014.

FORECASTSlow pace will continue to characterize recovery

HISTORIC & PROJECTED VACANCY: OCCUPANCY TO INCREASE MODESTLY OVER THE NEXT TWO YEARS



YearTotal Historic and

Forecasted Inventory (sf)

Total Historic & Forecasted

Occupancy (sf)

Direct Vacancy %

1997 120,434,748 104,939,294 12.9%1998 119,972,770 106,058,995 11.6%1999 118,691,577 106,744,585 10.1%2000 121,440,276 109,533,759 9.8%2001 122,776,164 108,743,284 11.4%2002 124,713,268 107,598,500 13.7%2003 125,037,423 106,754,119 14.6%2004 126,452,643 106,568,104 15.7%2005 128,385,650 105,737,728 17.6%2006 126,478,575 108,402,912 14.3%2007 125,626,639 110,969,808 11.7%2008 125,269,078 110,833,045 11.5%2009 130,038,076 110,112,891 15.3%2010 130,539,796 109,602,891 16.0%2011 130,649,210 110,516,410 15.4%2012 131,044,641 111,258,938 15.1%2013 131,087,914 111,867,532 14.7%2014 131,087,914 112,655,958 14.1%

606,481

20,544

1997-2012 Absorption Avg:

YTD 2013 Absorption:

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

100,000,000

105,000,000

110,000,000

115,000,000

120,000,000

125,000,000

130,000,000

135,000,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Total Historic and Forecasted Inventory (sf) Total Historic & Forecasted Occupancy (sf) Direct Vacancy %

Total projected inventory based on addition of projects currently under construction Occupancy is forecast based on proprietary assumptions regarding the Chicago MSA’s total employment

change and the office industry’s historical performance which trails the overall economy.

SUBMARKET MAP



MARKET STATISTICS



CENTRAL LOOPRBA(sf)

YTDAbsorption (sf)

1st QuarterAbsorption (sf)

Direct Vacancy(sf)

Direct Vacancy

%

Occupancy(sf)

Sublease Vacancy

(sf)

Total Vacancy Rate (Direct + Sublease) %

Class A 13,575,094 (32,312) (32,312) 1,253,860 9.2% 12,321,234 539,988 13.2%

Class B 14,263,388 (29,491) (29,491) 2,301,014 16.1% 11,962,375 386,361 18.8%

Class C 8,627,220 (116,136) (116,136) 1,471,011 17.1% 7,156,210 31,078 17.4%

Total 36,465,702 (177,939) (177,939) 5,025,884 13.8% 31,439,818 957,427 16.4%

EAST LOOPRBA(sf)

YTDAbsorption (sf)


Direct Vacancy(sf)

Direct Vacancy

%

Occupancy(sf)

Sublease Vacancy

(sf)


Class A 4,048,035 93,566 93,566 628,932 15.5% 3,419,103 81,437 17.5%

Class B 10,559,292 76,447 76,447 2,552,349 24.2% 8,006,943 144,607 25.5%

Class C 8,375,098 6,996 6,996 1,188,745 14.2% 7,186,353 66,766 15.0%

Total 22,982,425 177,009 177,009 4,370,026 19.0% 18,612,399 292,810 20.3%

N. MICHIGAN AVE.RBA(sf)

YTDAbsorption (sf)


Direct Vacancy(sf)

Direct Vacancy

%

Occupancy(sf)

Sublease Vacancy

(sf)


Class A 3,949,554 31,239 31,239 673,514 17.1% 3,276,040 175,795 21.5%

Class B 4,716,413 (53,942) (53,942) 1,162,775 24.7% 3,553,638 46,254 25.6%

Class C 4,292,873 (34,652) (34,652) 863,453 20.1% 3,429,420 69,451 21.7%

Total 12,958,840 (57,356) (57,356) 2,699,742 20.8% 10,259,098 291,500 23.1%

RIVER NORTHRBA(sf)

YTDAbsorption (sf)


Direct Vacancy(sf)

Direct Vacancy

%

Occupancy(sf)

Sublease Vacancy

(sf)


Class A 3,992,461 53,842 53,842 391,461 9.8% 3,601,000 5,500 9.9%

Class B 3,738,159 13,412 13,412 231,895 6.2% 3,506,263 418,887 17.4%

Class C 5,542,742 (18,335) (18,335) 539,980 9.7% 5,002,763 162,244 12.7%

Total 13,273,362 48,919 48,919 1,163,336 8.8% 12,110,026 586,631 13.2%

SOUTH LOOPRBA(sf)

YTDAbsorption (sf)


Direct Vacancy(sf)

Direct Vacancy

%

Occupancy(sf)

Sublease Vacancy

(sf)


Class A 1,019,325 18,513 18,513 284,405 27.9% 734,920 10,830 29.0%

Class C 1,155,967 6,044 6,044 277,644 24.0% 878,323 0 24.0%

Total 2,175,292 24,557 24,557 562,049 25.8% 1,613,243 10,830 26.3%

WEST LOOPRBA(sf)

YTDAbsorption (sf)


Direct Vacancy(sf)

Direct Vacancy

%

Occupancy(sf)

Sublease Vacancy

(sf)


Class A 27,147,296 158,864 158,864 3,800,338 14.0% 23,346,958 873,004 17.2%

Class B 9,735,921 (46,916) (46,916) 1,099,958 11.3% 8,635,963 168,637 13.0%

Class C 6,349,076 (106,593) (106,593) 1,107,642 17.4% 5,241,434 84,804 18.8%

Total 43,232,292 5,354 5,354 6,007,938 13.9% 37,224,355 1,126,445 16.5%

TOTALSRBA(sf)

YTDAbsorption (sf)


Direct Vacancy(sf)

Direct Vacancy

%

Occupancy(sf)

Sublease Vacancy

(sf)


Class A 53,731,764 323,712 323,712 7,032,510 13.1% 46,699,254 1,686,554 16.2%

Class B 43,013,172 (40,491) (40,491) 7,347,991 17.1% 35,665,182 1,164,746 19.8%

Class C 34,342,977 (262,677) (262,677) 5,448,475 15.9% 28,894,502 414,343 17.1%

Total CBD 131,087,914 20,544 20,544 19,828,976 15.1% 111,258,938 3,265,643 17.6%


SECTION THREE

SUBURBAN CHICAGOEXECUTIVE SUMMARYFrom 2008 to 2011, Suburban Chicago lost more than six million square feet of occupancy, and its direct vacancy rate peaked at a record 23.6 percent. Demand stagnated in 2012 as occupancy remained essentially unchanged throughout the year. Vacancy is still extremely high, just 60 basis points below the recession peak, yet by outperforming the CBD for the second quarter in a year, direct vacancy has begun to decline.

Key Indicators: • Quarterly net absorption was above 100,000 square feet for the second straight quarter, totaling a positive 330,000 square feet, causing direct

vacancy to fall 20 basis points to 23.0 percent. The Northwest submarket was the best performing segment, experiencing 220,000 square feet of positive absorption.

• Occupancy grew across all building classes during the first quarter with Class B outperforming the other segments. While Suburban Class A buildings had the greatest net positive absorption, most of this can be attributed to the East-West submarket.

• AT&T’s combined 1.4 million square feet of sublease space at its corporate campus and a smaller building in Hoffman Estates continues to constrain the sublease market. The potential for formerly single-tenant corporate campuses to enter the multi-tenant market weighs on Suburban Chicago. Motorola Mobility (Google) is also now looking to sell its former corporate campus.

• Large deal activity continues to be quiet as the suburbs struggle to attract new users from outside the market. Many tenants have relocated within the same submarket, highlighted by Advocate Health Care relocating 140,000 square feet within the East-West submarket from Oak Brook to 3075 Highland Parkway in Downers Grove. This “musical chairs” trend, where companies lease a large block of space and leave behind another large block in the same submarket, has hindered the recovery.

• Class A asking rental rates dropped another 4.1 percent year-over-year. The positive absorption seen in the first quarter suggests the market may be responding to the lower rates.

• Outdated product plagues the suburbs and fuels the glut of vacant space. Allstate is considering tearing down its former headquarters building in South Barrington. However, other obsolete buildings are still listing space and driving down market economics.

• Speculative construction is at a standstill. Construction has been limited to build-to-suit projects, such as the recently completed headquarters for Astellas Pharma US in Glenview. The Hub Group and the Big Ten recently broke ground on build-to-suit headquarters, and both plan to occupy later this year.

Direct vacancy in Suburban Chicago is 8.3 percent above lows seen in 2007 while employment is still 5.5 percent below peak. While the labor market is a key determinant of office space demand, the fact that occupancy has trailed the labor recovery suggests that other demand factors are holding back the Suburban market. Corporate relocations to the in-demand CBD, underutilized space and increasing corporate taxes remain the biggest risks to the market.

SUBURBAN VACANCY AND YEAR-TO-DATE ABSORPTION SUMMARY


Direct Vacancy1Q2013

AChange from

4Q2012B

Change from 4Q2012

CChange from

4Q2012Total

Change from 4Q2012

East-West 20.1% -1.0% 23.7% 0.7% 25.0% -0.7% 22.0% -0.4%

North 22.6% 1.0% 16.5% -1.4% 22.8% -0.1% 20.9% 0.2%

Northwest 20.8% -0.3% 32.1% -1.5% 28.9% -1.1% 25.0% -0.8%

O'Hare 18.1% -0.1% 30.2% 0.0% 37.3% 0.4% 25.0% 0.1%

Suburban Chicago Total 20.7% -0.2% 25.3% -0.4% 27.7% -0.5% 23.0% -0.2%

Net Absorption1Q2013

A B C Total

East-West 239,844 (99,158) 29,585 170,271

North (156,305) 96,264 (2,219) (62,259)

Northwest 54,107 133,249 32,169 219,525

O'Hare 9,719 3,880 (11,686) 1,913

Suburban Chicago Total 147,366 134,235 47,849 329,450

SUBURBAN CHICAGO


NEW DEVELOPMENTSpeculative construction is years away

• As has been the case for the past several quarters, no new speculative office developments were announced while new construction has been limited to a select number of build-to-suit projects. With Class A direct vacancy at 20.7 percent, there is simply not enough demand to justify new, multitenant product.

• Astellas Pharma US occupied its new build-to-suit 440,000 square foot headquarters in Glenview in mid-2012. A large portion of their former space in Deerfield was backfilled by Mondelez International during the first quarter of 2013.

• The Hub Group and the Big Ten Conference broke ground on their respective build-to-suit headquarters in August 2012. The Big Ten Conference’s 50,000 square foot headquarters at 5440 Park Place in Rosemont is expected to be delivered in September 2013. The Hub Group’s 130,000 square foot building located at 200 Clearwater Drive in Oak Brook is expected to be completed in November 2013.

• The Suburban market currently has almost 26 million square feet of vacant space. This figure only accounts for competitive, multi-tenant properties. There are several corporate headquarter facilities that are vacant, including properties formerly occupied by United Airlines, Allstate and soon to be Motorola Mobility. Thus, the oversupply of available space in the market has made speculative construction unfeasible.

• OUTLOOK: Suburban Chicago has an overabundance of vacant space. Numerous proposed developments are ready to break ground once demand is strong enough. Between historically high market vacancy and constrained financing, speculative development is not likely for the next several years.

NEW DELIVERIES PIPELINE


2013 DeliveriesBuilding Address Size (sf) % Leased Submarket Comments

Total - 0 Properties

Under ConstructionBuilding Address Size (sf) % Pre-leased Due Date Comments

2000 Clearwater Dr, Oak Brook 130,000 100.0% November 2013 Broke ground August 2012 and expected to be completed in November 2013. Build-to-suit headquarters

for the Hub Group.5440 Park Pl, Rosemont 50,000 100.0% September 2013 Broke ground August 2012 and expected to be

completed in September 2013. Build-to-suit headquarters for the Big Ten Conference.

Total - 2 Properties

ProposedBuilding Address Size (sf) % Pre-leased Due Date Comments

Numerous multi-tenant properties, but none set to break ground

SUBURBAN CHICAGOSUPPLY

SUBLEASE SPACEGlut in large block availability remains despite overall sublease space decreasing

• The amount of available sublease space decreased 7.0 percent compared to last quarter. Sublease availability continues to weigh heavily on the direct market for Class A space despite shedding over 200,000 square feet during the first quarter. Almost 4.0 percent of total Class A inventory is available for sublease.

• The only new large sublease block to hit the market was at 2455 Corporate West Drive in Lisle where Claymore Securities leases the entire building. After selling the building in June 2008, Claymore Securities is now looking for subtenants to take over its 54,000 square foot space which expires in October of this year.

• OUTLOOK: The amount of available sublease space dropped to 3.3 million square feet and is under the Suburban historical average of 3.4 million square feet for only the second time since 2007. Even so, with weak demand and no large blocks rolling over until June, sublease availability is expected to remain elevated.

HISTORIC YEAR-END SUBLEASE AVAILABILITY: CLASS B CONTINUES TO DECLINE



0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD2013


Class ABuilding Address Size (sf) Occupancy Expiration Submarket Sublandlord

2000 W AT&T Dr, Hoffman Estates 1,207,245 Negotiable August 2016 Northwest AT&T3 Overlook Pt, Lincolnshire 290,143 Vacant February 2017 North Hewitt Associates4201 Winfield Rd, Warrenville 249,996 Vacant Negotiable East-West Navistar1000 Milwaukee Ave, Glenview 177,487 30 Days April 2017 North AON Warranty Group3500 Lacey Rd, Downers Grove 156,855 Vacant May 2014 East-West Hillshire Brands1200 Lakeside Dr, Bannockburn 106,016 August 2013 May 2023 North Catalyst Rx2441 Warrenville Rd, Lisle 91,268 June 2013 January 2016 East-West SXC Health Solutions Group425 N Martingale Rd, Schaumburg 58,091 30 Days December 2015 Northwest Navistar2455 Corporate West Dr, Lisle 54,000 November 2013 June 2023 East-West Claymore Securities701 E 22nd St, Lombard 52,079 120 Days June 2013 East-West The Marketing Store5202 Old Orchard Rd, Skokie 50,766 Negotiable June 2021 North National Lewis University

Total - 11 Spaces 2,493,946

Class BBuilding Address Size (sf) Occupancy Expiration Submarket Sublandlord

2001 Lakewood Blvd, Hoffman Estates 239,250 Negotiable Negotiable Northwest AT&T750 N Commons Dr, Aurora 112,605 30 Days September 2017 East-West Westell Technologies850-950 Warrenville Rd, Lisle 85,530 Negotiable January 2019 East-West National-Louis University3333 Finley Rd, Downers Grove 46,969 September 2013 Negotiable East-West Acxiom Corporation


LARGE BLOCKS (MORE THAN 50,000 SQUARE FEET) OF SUBLEASE SPACE CURRENTLY AVAILABLE

Italicized addresses indicate space is new on the market

LARGE BLOCKS OF DIRECT AVAILABILITYMotorola Mobility’s corporate campus hits the market

• The total number of direct, available large blocks increased to 85, and was accompanied by a 1.5 million square foot increase within those blocks. Class A saw the largest increase, adding three blocks totaling 1.4 million square feet.

• The largest block added during the quarter was Motorola Mobility Holdings’ former 1.1 million square foot corporate campus in Libertyville. Google acquired Motorola Mobility in May 2012 and is now marketing the space after deciding to move the headquarters and its 2,200 employees to its 572,000 square foot lease at 222 Merchandise Mart. It is the largest block of direct, available space in the Suburban market.

• The largest block removed during the quarter was a 71,000 square foot space at 9801 West Higgins in Rosemont. The United Food and Commercial Workers Union leased 21,000 square feet on the fifth floor bringing the block under 50,000 square feet.



CLASS ABuilding Address City Size (sf) Submarket

600 N US Highway 45 * Libertyville 1,121,186 North21440 Lake Cook Rd Deer Park 351,425 Northwest700 Oakmont Ln Westmont 256,767 East-West2400 Cabot Dr Lisle 217,718 East-West5550 Prairie Stone Pky Hoffman Estates 193,601 Northwest1701 Golf Rd Rolling Meadows 183,506 Northwest300 Tower Pky * Lincolnshire 175,545 North3333 Beverly Rd Hoffman Estates 129,000 Northwest2895 Greenspoint Pky Hoffman Estates 127,941 Northwest1000 Milwaukee Ave Glenview 114,144 North1 Overlook Pt Lincolnshire 111,327 North200 N Martingale Rd Schaumburg 109,716 Northwest1707 N Randall Rd Elgin 109,076 Northwest3 Parkway Blvd N Deerfield 107,625 North1 Pierce Pl ** Itasca 106,766 Northwest2355 Waukegan Rd Bannockburn 106,495 North8420 W Bryn Mawr Ave ** Chicago 104,164 O'Hare8750 W Bryn Mawr Ave * Chicago 102,498 O'Hare25 Tri State International * Lincolnshire 95,771 North3075 Highland Pky * Downers Grove 88,576 East-West1707 N Randall Rd Elgin 87,076 Northwest200 N Martingale Rd Schaumburg 86,310 Northwest75 Tri State International * Lincolnshire 86,036 North535 E Diehl Rd Naperville 83,792 East-West425 N Martingale Rd Schaumburg 81,862 Northwest2550 W Golf Rd Rolling Meadows 81,222 Northwest2655 Warrenville Rd Downers Grove 76,691 East-West2245 Sequoia Dr * Aurora 76,126 East-West5100 River Rd * Schiller Park 74,988 O'Hare4343 Commerce Ct * Lisle 74,855 East-West333 Knightsbridge Pky Lincolnshire 74,728 North3050 Highland Pky * Downers Grove 74,319 East-West1200 Lakeside Dr Bannockburn 74,119 North2135 CityGate Ln Naperville 70,537 East-West1333 Butterfield Rd Downers Grove 70,251 East-West1000 Royce Blvd ** Oakbrook Terrace 70,000 East-West9500 W Bryn Mawr Ave Rosemont 69,701 O'Hare10255 W Higgins Rd Rosemont 69,695 O'Hare1 Parkview Plz * Oakbrook Terrace 69,069 East-West2100 Sanders Rd Northbrook 67,681 North701 Warrenville Rd Lisle 67,233 East-West4201 Lake Cook Rd Northbrook 66,000 North540 Lake Cook Rd Deerfield 63,298 North300 Park Blvd Itasca 60,939 Northwest2 Pierce Pl Itasca 60,904 Northwest1000 Milwaukee Ave Glenview 60,843 North410 Warrenville Rd ** Lisle 60,434 East-West18W140 Butterfield Rd Oakbrook Terrace 58,085 East-West3000 Lakeside Dr Bannockburn 56,416 North2100 Enterprise Ave Geneva 55,584 East-West3800 N Wilke Rd Arlington Heights 54,867 Northwest750 Warrenville Rd * Lisle 54,415 East-West1222 Hamilton Pky Itasca 54,150 Northwest7400 N Caldwell Ave Niles 54,000 North701 E 22nd St * Lombard 52,079 East-West3500 Lacey Rd Downers Grove 51,601 East-West3 Westbrook Corporate Ctr * Westchester 50,895 East-West57 Blocks of Space 6,413,648

CLASS BBuilding Address City Size (sf) Submarket

3890 Salem Lake Dr Long Grove 150,000 Northwest2350-2360 E Devon Ave Des Plaines 142,596 O'Hare5450 N Cumberland Ave Chicago 134,525 O'Hare700 N Wood Dale Rd Wood Dale 125,328 Northwest300 Bauman Ct Wood Dale 104,518 Northwest2250 W Pinehurst Blvd Addison 100,904 Northwest1000 E Woodfield Rd Schaumburg 98,555 Northwest703-709 W Algonquin Rd Arlington Heights 96,213 Northwest4242 N Harlem Ave Norridge 93,155 O'Hare544 Lakeview Pky Vernon Hills 84,237 North500 Joliet Rd Willowbrook 78,400 East-West2000 S Finley Rd Lombard 78,300 East-West1350 E Touhy Ave Des Plaines 71,367 O'Hare333 E Butterfield Rd Lombard 70,897 East-West3800 Golf Rd * Rolling Meadows 67,599 Northwest2850 W Golf Rd Rolling Meadows 67,241 Northwest8550 W Bryn Mawr Ave * Chicago 66,895 O'Hare814 Commerce Dr Oak Brook 66,882 East-West1245 Corporate Blvd Aurora 64,960 East-West27545 Diehl Rd Warrenville 62,440 East-West999 E Touhy Ave Des Plaines 59,710 O'Hare2850 W Golf Rd Rolling Meadows 54,040 Northwest2211 Butterfield Rd Downers Grove 52,891 East-West2400 E Devon Ave Des Plaines 51,053 O'Hare24 Blocks of Space 2,042,706

CLASS CBuilding Address City Size (sf) Submarket

1299 Algonquin Rd Schaumburg 195,393 Northwest3501 Algonquin Rd Rolling Meadows 156,140 Northwest2-4-6 Genesee St Waukegan 75,996 North1950 S Batavia Ave Geneva 51,845 East-West4 Blocks of Space 479,374

Italicized addresses indicate space is new on the market * Block of space is for future occupancy **Block of space will be vacated in the upcoming quarter

VACANCY RATESMarket vacancy declines slightly

• Positive absorption in three of the four submarkets caused direct vacancy to decrease 20 basis points to 23.0 percent. The total vacancy rate, which includes sublease space, dropped 20 basis points to 26.0 percent.

• The direct vacancy in the East-West submarket decreased 40 basis points to 22.0 percent after seeing it rise for two straight quarters. The Northwest submarket was the only other segment where direct vacancy decreased, dropping 80 basis points to 25.0 percent. Direct vacancy jumped 20 basis points in the North submarket, increasing to 20.9 percent. Despite the decrease in occupancy, the North submarket has the lowest vacancy rate in the Suburban market.

• Vacancy fell in Clas A, B and C buildings but most drastically in Class C buildings. The mixed results in Class A buildings absorption throughout the submarkets is indicative of turbulence in the market as some large tenants move to the CBD while others expand at their existing location.

• OUTLOOK: Major corporate relocations and downsizing will continue to hamper a recovery, with vacancy rates continuing to be above 20 percent.


SUBURBAN CHICAGODEM

AND

HISTORIC YEAR-END VACANCY RATES BY SUBMARKET: NORTHWEST SHOWS STRONG IMPROVEMENT

0%

5%

10%

15%

20%

25%

30%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD 2013

East-West North Northwest O'Hare Total Suburban

0%

5%

10%

15%

20%

25%

30%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD 2013

Class A Class B Class C Total Suburban

HISTORIC YEAR-END VACANCY RATES BY CLASS: B AND C PROPERTIES SHOW SLIGHT IMPROVEMENT

LARGE DEALSKraft completes headquarters sale-leaseback

• Kraft Foods Group finalized the sale-leaseback of its 679,000 square foot corporate campus at 3 Lakes Drive in Northfield. W.P. Carey & Co. purchased the campus from Kraft for $72.3 million or $106 per square foot. In exchange, Kraft signed a lease to remain the building’s only tenant.

• The healthcare industry figured prominently in suburban large deals, representing almost half of the companies signing deals over 20,000 square feet. Advocate Health Care will relocate offices within the East-West submarket in May. The company leased 140,000 square feet at Highland Landmark I (3075 Highland Parkway) in Downers Grove and will vacate space at 2025 Windsor Drive in Oak Brook.

• Patterson Medical will also relocate within the East-West submarket, leasing 53,000 square feet at Cantera Meadows West (28100 Torch Parkway) in Warrenville. They will vacate space at 1000 Remington Boulevard in Bolingbrook in May.

• With an abundance of vacant space in the marketplace, many tenants have been able to consolidate multiple offices into one location and expand existing spaces. Loyola University Medical Center signed a 46,000 square foot renewal/expansion, more than doubling its square footage at the five-building Westbrook Corporate Center in Westchester.

• OUTLOOK: Due to lack of growth, most new large deals involve companies who are already based in the suburbs, resulting in a “musical chairs” effect where large blocks are filled at the expense of creating new ones. For sustained occupancy increases, ten-ants must expand or new tenants must enter the Suburban market in order to offset companies like Sara Lee (Hillshire Brands) who are exiting the market. Unfortunately, the market has not displayed the new demand necessary for this to happen on a large enough scale to significantly affect direct vacancy.

LARGE LEASE TRANSACTIONS


SUBURBAN CHICAGODEM

AND

NEW


Kraft New North 3 Lakes Dr, Northfield 679,000Advocate Health Care Relo East-West 3075 Highland Pkwy, Downers Grove 139,470Patterson Medical Relo East-West 28100 Torch Pkwy, Warrenville 53,220Association Management Center Relo/Exp O'Hare 8735 W Higgins Rd, Chicago 47,129Molina Healthcare New East-West 1520 Kensington Rd, Oak Brook 37,127Pet Factory New North 1700 S Butterfield Rd., Mundelein 30,000The Alternative Source Medical New North 1700 S Butterfield Rd., Mundelein 30,000Data Max Services Relo North 720 Landwehr Rd., Northbrook 24,000United Food and Commercial Workers New O'Hare 9801 W Higgins Rd., Rosemont 20,688Total - 9 Deals 1,060,634

RENEWAL/EXPANSION/SUBLEASE


Loyola University Medical Center Ren/Exp East-West 1-5 Westbrook Corporate Ctr, Westchester 45,612Ohio Public Employees Retirement System Ren O'Hare 8430 W Bryn Mawr, Rosemont 32,295Blue Chip Marketing Exp North 650 Dundee Road, Northbrook 30,000Total - 3 Deals 107,907

Abbreviations: Cons - Consolidation Cont - Contraction Exp - Expansion Relo - Relocation Ren - Renewal Sub - Sublease

(1,500,000)

(1,000,000)

(500,000)

0

500,000

1,000,000

1,500,000

2005 2006 2007 2008 2009 2010 2011 2012 YTD 2013


ABSORPTIONAbsorption increases despite a struggling Class A market

• Demand increased in the Suburban market as positive net absorption totaled 330,000 square feet. Class A buildings in the North submarket were the only Class A segment to post negative absorption. Class B properties experienced demand in three of the four submarkets, ending the quarter with net positive absorption of 134,000 square feet.

• OUTLOOK: Increasing demand in a market with high vacancy and plummeting rental rates suggests that companies are beginning to take advantage of the tenants’ market. Even so, the Suburban market continues to struggle to compete with a booming CBD. Posi-tive absorption will continue but until job growth picks up and the Suburban market finds more significant demand drivers, overall demand will remain weak.


SUBURBAN CHICAGODEM

AND

EAST-WEST 2005 2006 2007 2008 2009 2010 2011 2012 YTD 2013

Class A 102,299 366,688 542,281 (259,973) (595,372) (219,164) 299,247 (457,450) 239,844

Class B 389,014 484,869 (203,072) (2,062) (259,196) 67,827 (152,069) 92,876 (99,158)

Class C 85,269 (125,850) (108,813) (87,441) (179,177) 7,017 55,114 (5,912) 29,585

Total 576,582 725,707 230,396 (349,476) (1,033,744) (144,319) 202,292 (370,486) 170,271

NORTH 2005 2006 2007 2008 2009 2010 2011 2012 YTD 2013

Class A 196,403 (100,049) 615,115 (240,617) (207,914) (312,238) (261,008) (365,450) (156,305)

Class B 164,357 316,207 355,510 (60,982) (38,575) (319,078) 33,814 131,363 96,264

Class C 12,697 (39,440) 26,935 (2,048) (104,195) (40,044) (90,151) 8,074 (2,219)

Total 373,457 176,718 997,560 (303,647) (350,684) (671,360) (317,345) (226,013) (62,259)

NORTHWEST 2005 2006 2007 2008 2009 2010 2011 2012 YTD 2013

Class A 225,865 (488,651) 10,333 (302,930) (388,945) (21,262) (632,282) 379,728 54,107

Class B (234,681) 12,266 (164,112) (261,498) (310,263) (295,928) (383,730) (19,395) 133,249

Class C (216,898) (15,371) (51,429) (28,362) (35,167) (192,091) (48,617) 41,909 32,169

Total (225,714) (491,756) (205,208) (592,790) (734,375) (509,280) (1,064,629) 402,242 219,525

O'HARE 2005 2006 2007 2008 2009 2010 2011 2012 YTD 2013

Class A (55,786) 189,235 11,636 (256,325) (134,526) 209,180 40,666 81,456 9,719

Class B 53,945 7,915 (81,167) (51,601) (80,925) 70,376 14,041 26,266 3,880

Class C (204,597) 90,170 (50,022) (35,696) 62,815 (10,855) (14,567) 17,442 (11,686)

Total (206,438) 287,320 (119,553) (343,622) (152,637) 268,701 40,140 125,164 1,913

TOTALS 2005 2006 2007 2008 2009 2010 2011 2012 YTD 2013

Class A 468,781 (32,777) 1,179,365 (1,059,845) (1,326,757) (343,484) (553,378) (361,716) 147,366

Class B 372,635 821,257 (92,841) (376,143) (688,960) (476,802) (487,944) 231,110 134,235

Class C (323,529) (90,491) (183,329) (153,547) (255,724) (235,972) (98,221) 61,512 47,849

Total 517,887 697,989 903,195 (1,589,535) (2,271,441) (1,056,259) (1,139,542) (63,094) 329,450

SUBURBAN CHICAGO ABSORPTION BY CLASS: STRONG START TO THE YEAR


GROSS ASKING RENTSAsking rental rates continue to plummet

• Over the last four quarters, gross asking rents have continued to fall in Class A and B buildings. Class A rents are down 4.1 percent, Class B rents are down 4.7 percent, and Class C net rents remained steady on a year-over-year basis.

• Class C buildings in the O’Hare submarket were the only segment in the Suburban market to post increased asking rents, up 5.1 percent over the past 12 months. However this segment is composed of just 2.5 million square feet and is 37.1 percent vacant, so the rent increase may be a result of the low sample size.

• Asking rental rates in the O’Hare Class A and B segments have fallen 7.4 and 7.9 percent respectively on a year-over-year basis. The decline in Class B asking rates was the largest in the overall market.

• Class A and C average direct rates are at the lowest levels in over 15 years. Gross asking rates once again reached new historical lows in the East-West and Northwest submarkets.

• Compared to peak levels, overall gross asking rents have fallen 15.4 percent and are at their lowest levels in MBRE’s tracked history.

• OUTLOOK: In general, segments with larger rent decreases have experienced positive absorption this year. With an overall market direct vacancy rate of 23.1 percent, rents will have to continue to decline to reach pre-recession occupancy.

ASKING RATES CONTINUE TO HIT RECORD LOWS


SUBURBAN CHICAGOFEATURES

AVERAGE GROSS ASKING RATES BY CLASS AND SUBMARKET

Average Direct Gross Asking Rent

AChange over

last yearB

Change over last year

CChange over

last yearTotal

Change over last year

East-West $21.61 -2.3% $17.63 -4.5% $15.18 -1.1% $19.44 -2.8%

North $19.54 -4.8% $19.18 -2.1% $15.51 -5.2% $19.07 -3.9%

Northwest $21.40 -4.1% $15.98 -5.2% $12.85 -1.1% $19.00 -4.3%

O'Hare $21.74 -7.4% $18.09 -7.9% $15.99 5.1% $19.67 -6.0%

Suburban Chicago Total $21.02 -4.1% $17.55 -4.7% $14.95 0.0% $19.26 -3.9%

$14

$16

$18

$20

$22

$24

$26

1Q2002 1Q2003 1Q2004 1Q2005 1Q2006 1Q2007 1Q2008 1Q2009 1Q2010 1Q2011 1Q2012 1Q2013


INVESTMENT SALESIncreased investment activity highlighted by Kraft’s sale-leaseback

• Investment sales increased both in terms of square footage and sale price. The largest transaction during the first quarter was Agellan Commercial REIT purchasing the two building complex at 1000 East Warrenville in Naperville. It paid $83.3 million, $171 per square foot, to the seller, M & J Willow Ltd. for the 487,000 square foot property.

• Saban Capital Group acquired the 240,000 square foot building at 2300 East Devon Avenue in Des Plaines for $39 million.

• Motorola Mobility (Google) hired the Binswanger Corporation to market its former 1.1 million square foot corporate campus. The company is marketing the property to tenants 200,000 square feet or larger although a single tenant buyer is preferred.

• OUTLOOK: Suburban Chicago has not generated the premier investor interest that characterizes the CBD. However, well-leased and well-located Class A properties as well as stabilized Class B properties continue to be in demand.

INVESTMENT SALES: INVESTMENT ACTIVITY ACCELERATES



*Price per square foot - based off estimated selling price for new to market buildings

On the Market: 1st Quarter 2013Building Address Submarket Size (sf) Price PSF * Class Seller Status (Listing Agent)

600 N. U.S. 45, Libertyville North 1,136,311 - - B GoogleNew on Market (Binswanger Corp)

1421-1501 W Shure Dr, Arlington Heights Northwest 1,120,871 - - B Nokia Siemens Networks B.S. On Market (CBRE)

Continental Towers Complex, 1701 W Golf Rd, Rolling Meadows

Northwest 911,000 - - ACWCapital Asset Management LLC

New on Market (Colliers)

Corporate 500 Center, 500-540 N Lake Cook Rd, Deerfield

North 697,672 - - A GE Capital On Market (JLL)

9550 W Higgins Rd, Rosemont O'Hare 234,314 - - A GE Capital On Market (JLL)

One Parkway North North 252,484 - - A GE Capital On Market (JLL)

Investment Sales: 1st Quarter 2013Building Address Submarket Size (sf) Price PSF * Class Seller Buyer

1000 E Warrenville Rd (2 Properties), Naperville East-West 486,979 $83,383,500 $171 B M & J Wilkow Ltd. Agellan Commercial REIT

3 Lakes Dr, Northfield North 679,000 $72,250,000 $106 B Kraft Foods, Inc. W.P. Carey & Co. LLC

2300 E Devon Ave, Des Plaines O'Hare 239,331 $39,000,000 $163 B Amcraft Construction Co., Inc. Saban Capital Group, Inc.

2707 Butterfield Rd (4 Properties), Oak Brook East-West 312,262 $33,000,000 $106 B Inland Real Estate CorporationAdventus Realty Services Inc.

2800 W Higgins Rd (3 Properties), Hoffman Estates

Northwest 498,635 $23,500,000 $47 A NewTower Trust CompanyTeachers Retirement System of Illinois

475 Bond St, Lincolnshire North 223,000 $22,600,000 $101 B RREEF AffiliateCole Real Estate Investments

2349 W Lake St, 2250 W Pinehurst Blovd, Addison

East-West 217,000 $14,300,000 $66 A/B Multi Emplyer Property Trust ACG Management Co.

FORECASTVacancy expected to slowly decline

Suburban Chicago has seen a slow and inconsistent recovery after direct vacancy increased almost 8.0 percent during the recession. Since occupancy reached its peak in 2007, the Suburban market has experienced only five quarters of positive absorption with net absorption from 2008 through the first quarter of 2013 totaling a negative six million square feet. After declining 7.4 percent peak-to-trough, total employment has recovered only 57 percent of those jobs.

Occupancy has slowly recovered and is now near its peak level in 2007, which bodes well for the market.Yet one quarter does not signal a sustained recovery and the Suburban market still faces stiff competition from the CBD. Lacking many of the demand drivers of the Chicago CBD, Suburban Chicago companies must find a way to expand. In addition, large sublease blocks, which have long been a hindrance to the direct market, continue to weigh on any hopes for a recovery.

While there continues to be sluggish demand for existing space, no new speculative construction is expected for several years. Because of the constraint on new supply, MB Real Estate expects a slight vacancy decrease in 2013. The large losses from 2009 are not expected again, but neither is a rapid recovery. Slight positive absorption will occur in 2013, but will likely be due to incremental growth within existing companies.

HISTORIC & PROJECTED VACANCY:



YearTotal Historic and

Forecasted Inventory (sf)

Total Historic & Forecasted

Occupancy (sf)

Direct Vacancy %

1996 90,601,193 82,039,636 9.4%1997 91,989,948 85,388,879 7.2%1998 95,078,215 88,016,285 7.4%1999 98,744,696 90,321,332 8.5%2000 103,270,399 93,033,912 9.9%2001 108,254,000 92,247,968 14.8%2002 109,769,838 91,258,173 16.9%2003 110,090,266 88,104,389 20.0%2004 110,423,452 90,452,884 18.1%2005 111,030,084 90,970,771 18.1%2006 110,806,221 91,668,760 17.3%2007 111,175,875 92,571,955 16.7%2008 112,080,944 90,982,420 18.8%2009 112,218,212 87,973,132 21.6%2010 112,374,614 86,916,873 22.7%2011 112,250,112 85,761,730 23.6%2012 112,331,043 86,532,573 23.0%2013 112,331,043 87,132,573 22.4%2014 112,331,043 87,932,573 21.7%

304,268

329,450

1996-2012 Absorption Avg:

YTD 2013 Absorption:

Total projected inventory based on addition of projects currently under construction Occupancy is forecast based on proprietary assumptions regarding the Chicago MSA’s total employment

change and the office industry’s historical performance which trails the overall economy.

0%

5%

10%

15%

20%

25%

80,000,000

85,000,000

90,000,000

95,000,000

100,000,000

105,000,000

110,000,000

115,000,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Total Historic and Forecasted Inventory (sf) Total Historic & Forecasted Occupancy (sf) Direct Vacancy %

SUBMARKET MAP



MARKET STATISTICS

EAST-WESTRBA(sf)

YTDAbsorption (sf)


Direct Vacancy(sf)

Direct Vacancy

%

Occupancy(sf)

Sublease Vacancy

(sf)

Total Vacancy Rate (Vacancy +

Sublease) %

Class A 20,663,569 239,844 239,844 4,158,435 20.1% 16,505,134 860,932 24.3%

Class B 14,511,106 (99,158) (99,158) 3,442,334 23.7% 11,068,773 492,888 27.1%

Class C 5,166,726 29,585 29,585 1,289,587 25.0% 3,877,139 9,004 25.1%

Total 40,341,401 170,271 170,271 8,890,355 22.0% 31,451,046 1,362,824 25.4%

NORTHRBA(sf)

YTDAbsorption (sf)


Direct Vacancy(sf)

Direct Vacancy

%

Occupancy(sf)

Sublease Vacancy

(sf)


Sublease) %

Class A 16,867,586 (156,305) (156,305) 3,805,559 22.6% 13,062,027 1,117,047 29.2%

Class B 7,368,595 96,264 96,264 1,219,140 16.5% 6,149,455 123,752 18.2%

Class C 2,512,716 (2,219) (2,219) 573,574 22.8% 1,939,142 24,018 23.8%

Total 26,748,898 (62,259) (62,259) 5,598,273 20.9% 21,150,625 1,264,817 25.7%

NORTHWESTRBA(sf)

YTDAbsorption (sf)


Direct Vacancy(sf)

Direct Vacancy

%

Occupancy(sf)

Sublease Vacancy

(sf)


Sublease) %

Class A 18,497,893 54,107 54,107 3,848,371 20.8% 14,649,523 369,694 22.8%

Class B 9,652,179 133,249 133,249 3,102,188 32.1% 6,549,992 131,642 33.5%

Class C 2,356,537 32,169 32,169 680,001 28.9% 1,676,536 21,431 29.8%

Total 30,506,609 219,525 219,525 7,630,559 25.0% 22,876,050 522,767 26.7%

O'HARERBA(sf)

YTDAbsorption (sf)


Direct Vacancy(sf)

Direct Vacancy

%

Occupancy(sf)

Sublease Vacancy

(sf)


Sublease) %

Class A 7,869,103 9,719 9,719 1,427,596 18.1% 6,441,507 160,074 20.2%

Class B 4,333,887 3,880 3,880 1,308,606 30.2% 3,025,281 47,355 31.3%

Class C 2,531,144 (11,686) (11,686) 943,081 37.3% 1,588,063 440 37.3%

Total 14,734,135 1,913 1,913 3,679,283 25.0% 11,054,851 207,869 26.4%

TOTALSRBA(sf)

YTDAbsorption (sf)


Direct Vacancy(sf)

Direct Vacancy

%

Occupancy(sf)

Sublease Vacancy

(sf)


Sublease) %

Class A 63,898,152 147,366 147,366 13,239,961 20.7% 50,658,191 2,507,747 24.6%

Class B 35,865,768 134,235 134,235 9,072,267 25.3% 26,793,501 795,637 27.5%

Class C 12,567,123 47,849 47,849 3,486,243 27.7% 9,080,880 54,893 28.2%

Total Suburban 112,331,043 329,450 329,450 25,798,470 23.0% 86,532,573 3,358,277 26.0%





CHICAGO MARKET OVERVIEW

Absorption: The net change in occupied space over a given period of time. Unless otherwise noted, Net Absorption includes direct and sublease space.

Asking Rent: The published rental rate for a space in a building, which may vary from the rent which is negotiated upon by the tenant and landlord.

Central Business District: The designations of Central Business District (CBD) and Suburban refer to a particular geographic area within a metropolitan statistical area (MSA) describing the level of real estate development found there. The CBD is characterized by a high density, well organized core within the largest city of a given MSA.

Class: A classification used to describe buildings, with Class A reflecting the highest quality and Class C reflecting the lowest quality.

Direct Vacant Space: Space that is being offered for lease directly from the landlord or owner of a building, as opposed to space being offered in a building by another tenant (or broker of a tenant) trying to sublet a space that has already been leased.

Initial Rate: The contracted starting rental rate for the first term of a lease.

Inventory: The square footage of buildings that have received a certificate of occupancy and are able to be occupied by tenants. Calculated by adding the Rentable Building Area (RBA) of all properties in a market or submarket.

Large Block: The amount of contiguous space available in a building in terms of square footage. Contiguous spaces over 50,000 square feet are considered large by MB Real Estate.

Lease Comparable: Comparables are properties with characteristics that are similar in nature. Their signing lease rates and other contracted elements are aggregated to analyze contracted market conditions as opposed to asking market conditions.

Market: Geographic boundaries that serve to delineate core areas that are competitive with each other and constitute a generally accepted primary competitive set of areas. Markets are building type specific and are non-overlapping contiguous geographic designations. Markets can be further subdivided into Submarkets.

Net Rental Rate: A rental rate that excludes certain expenses that a tenant could incur in occupying office space. Such expenses are expected to be paid directly by the tenant and may include janitorial costs, electricity, utilities, taxes, insurance and other related costs.

Preleased Space: The amount of space in a building that has been leased prior to its construction completion date, or certificate of occupancy date.

Price/SF: Calculated by dividing the price of a building (either sales price or asking sales price) by the Rentable Building Area (RBA).

Rentable Building Area (RBA): The total building square footage that can be occupied by or assigned to a tenant for the purpose of determining a tenant’s rental obligation. Generally, RBA includes a percentage of common areas including all hallways, main lobbies, bathrooms, and telephone closets.

Rental Rates: The annual costs of occupancy for a particular space quoted on a per square foot basis.

Sales Price: The total dollar amount paid for a particular property at a particular point in time.

SF: Abbreviation for Square Feet.

Sublease Space: Space that has been leased by a tenant and is being offered for lease back to the market by the tenant with the lease obligation. Sublease space is sometimes referred to as sublet space.

Submarkets: Specific geographic boundaries that serve to delineate a core group of buildings that are competitive with each other and constitute a generally accepted primary competitive set, or peer group. Submarkets are building type specific (office, industrial, retail, etc.), with distinct boundaries dependent on different factors relevant to each building type. Submarkets are non-overlapping, contiguous geographic designations having a cumulative sum that matches the boundaries of the Market they arelocated within.

Suburban: The Suburban and Central Business District (CBD) designations refer to a particular geographic area within a metropolitan statistical area (MSA). Suburban is defined as including all office inventory not located in the CBD.

Tenant Improvement: Those changes to property to accommodate specific needs of a tenant. TIs include installation or relocation of interior walls or partitions, carpeting or other floor covering, shelves, windows, toilets, etc. The cost of these is negotiated in the lease.

Total Vacant Space: Direct plus sublease vacant space.

Under Construction: The status of a building that is in the process of being developed, assembled, built or constructed. A building is considered to be under construction after it has begun construction and until it receives a certificate of occupancy.

Vacancy Rate: A measurement expressed as a percentage of the total amount of physically vacant space divided by the total amount of existing inventory. Under construction space generally is not included in vacancy calculations. Vacancy rate can be based on direct, sublease, or total vacant space.

Vacant Space: Space that is not currently occupied by a tenant, regardless of any lease obligation that may be on the space. Vacant space could be space that is either available or not available. For example, sublease space that is currently being paid for by a tenant but not occupied by that tenant, would be considered vacant space. Likewise, space that has been leased but not yet occupied because of finish work being done, would also be considered vacant space.

YTD: Abbreviation for Year-to-Date. Describes statistics that are cumulative from the beginning of a calendar year through whatever time period is being studied.

SECTION FOUR

ADDITIONAL INFORMATIONGLOSSARY


MB REAL ESTATE

ABOUT MB REAL ESTATE Our mission is to provide clients and investors with extraordinary real estate value and unlimited support

MB REAL ESTATE HEADQUARTERS181 West Madison, Suite 4700Chicago, Illinois 60602phone: 312.726.1700fax: 312.807.3853

EAST COAST REGIONAL HEADQUARTERS

335 Madison Avenue, 14th FloorNew York, New York 10017phone: 212.350.2300fax: 212.350.2301

COMPANY LEADERSHIP

PETER E. RICKERChairman & CEO

JOHN T. MURPHYPresident

At MB Real Estate, our corporate mission is to maximize the value of our clients’ real estate by creating timely and innovative solutions that meet their unique needs and objectives.

We offer the highest level of real estate support with our team of committed, results-driven experts in asset and facilities management, leasing, tenant representation, development, project management, and investment services.

Supported by dedicated accounting, marketing, human resources, and information technology teams, our unique full-service firm is an industry leader in local and national corporate real estate.

DEPARTMENT LEADERSHIP

PATRICIA ALUISI Executive Vice President & Chief Administrative Officer/General Counsel

MARK A. BUTH Executive Vice President & Managing Director of Leasing Services

ANDREW J. DAVIDSON Executive Vice President & Managing Director of Corporate Services & Tenant Advisory

GARY A. DENENBERG Executive Vice President & Managing Director of Leasing Services

DAVID R. GRAFF Senior Vice President of Project Services

MAUREEN G. GROVE Vice President & Managing Director of Accounting Services

DANIEL J. NIKITAS Executive Vice President of Corporate Services & Tenant Advisory Services

KEV IN M. PURCELL Executive Vice President & Chief Operating Officer

PETER J. WESTMEYER Senior Vice President & Managing Director of Investment Services

mb real estate's 2013 1st quarter chicago market overview

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