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CBRE Global Research and Consulting

© 2014, CBRE, Inc.

Chicago Suburban OfficeMarketView

POSITIVE ABSORPTION CONTINUES IN THE SUBURBS

Quick Stats

Hot Topics

Eleventh consecutive quarter of positive absorption.

Thirteen sales of Class A and B properties during Q2 2014, totaling $435 million with another three properties currently under contract.

The direct vacancy rate for the suburban market is currently at its lowest level since Q1 2009.

Market Overview

The Chicago Suburban Market took another statistical step towards stabilization during Q2 2014. The overall market finished with positive net absorption for the eleventh consecutive quarter and continues in a favorable direction for the first half of 2014 after compiling significant totals in 2013.

At the half-way point in the year, the suburban market is on track for another year of over one million sq. ft. of positive net absorption. In Q2 2014, the net absorption totaled 476,587 sq. ft. with all three class types showing positive results. The largest contributions were from the East/West Tollway and Northwest submarkets, totaling 304,385 sq. ft. and 184,244 sq. ft., respectively. Large movement in the quarter included Omron Corporation occupying 70,199 sq. ft. at Greenspoint III in Hoffman Estates and Sanford’s relocation to Esplanade II in Downers Grove for 55,874 sq. ft.

This quarter’s leasing activity produced only one deal over 100,000 sq. ft. as AbbVie signed a deal to relocate and sublease 539,568 sq. ft. in Mettawa. This deal is the first relocation over 300,000 sq. ft. since Catamaran Corporation’s relocation to Schaumburg in Q3 2012. Other large deals included Xerox Corporation’s renewal for 89,817 sq. ft. in Rosemont and GSA’s renewal for 81,493 sq. ft. in Oak Brook. Lanza Tech’s decision to move their global headquarters from New Zealand to 41,097 sq. ft. at the Illinois Science and Technology Park in Skokie was another positive sign for the market. Joining companies like Zurich North America in Schaumburg and the Big Ten Conference in Rosemont,

Duchossois Group has purchased an Oak Brook site, planning to create a build-to-suit office facility. Although these companies are not choosing existing options for their office space needs, it is notable they are committing to the suburban market for their long-term future plans.

As a result of the large positive absorption, the direct vacancy decreased 50 basis points (bps) from the previous quarter to 19.3%, the lowest direct vacancy rate since the beginning of 2009. The sublease vacancy remained at 0.8%, bringing the total vacancy rate to 20.1% for Q2 2014. The current overall gross asking rate is $21.46 per sq. ft., an increase of $0.47 since this time last year. The suburban market has experienced an increase in gross asking rates for the past six consecutive quarters.

The current streaks of positive net absorption and increasing asking rates, coupled with recent long-term corporate commitments, all point toward the continued development of the suburban market. Unfortunately, the unemployment rates for the Chicago metropolitan area and the State of Illinois remain above national levels despite significant decreases during the quarter. Not Seasonally Adjusted unemployment figures for Illinois show a preliminary rate of 7.2% for May, down 220 bps since February. The Chicago metropolitan area unemployment statistics reported a preliminary rate of 7.2% for May, down 180 bps since February. A continuation of this job growth in the second half of 2014 may provide even more positive gains in the suburban market.

Q2 2014

Q2 2014 QoQ YoY

Direct Vacancy 19.3%

Lease Rates $21.46

Net Absorption 476,587

Under Construction 0

*The arrows are trend indicators over thespecified time period and do not represent apositive or negative value. (e.g., absorptioncould be negative, but still represent apositive trend over a specified period.)

U.S. GDP (Q1)(2.9%)

U.S. UNEMPLOYMENT6.1%

S&P 5004.0%

CHICAGO JOB GROWTH88,200

**Top ticker shows change compared toprevious quarter

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Submarket

Rentable Building Area SF

Direct Vacant SF

Direct Vacancy

Rate (%)

Sublease Vacancy

Rate (%)

Total Vacancy

Rate (%)*Q2 2014 Net

Absorption SF2014 YTD Net

Absorption

Under Construction

SF

Gross Asking Lease Rates

PSF

East-West Tollway 40,996,744 7,332,482 17.9% 0.8% 18.7% 304,385 170,086 - $21.16

Class A 12,738,563 1,486,669 11.7% 1.4% 13.1% 154,337 160,899 - $26.52

Class B 19,582,419 4,038,247 20.6% 0.7% 21.3% 115,457 (86,520) - $21.08

Class C 8,675,762 1,807,566 20.8% 0.3% 21.2% 34,591 95,707 - $16.49

North Suburban 23,943,572 4,252,066 17.8% 1.0% 18.8% (19,002) 40,846 - $24.21

Class A 8,911,030 1,236,319 13.9% 1.9% 15.7% (58,374) (29,656) - $27.95

Class B 10,460,441 2,191,380 20.9% 0.7% 21.6% 42,648 46,038 - $23.41

Class C 4,572,101 824,367 18.0% 0.1% 18.1% (3,276) 24,464 - $19.47

Northwest Suburbs 28,081,008 6,045,245 21.5% 0.7% 22.2% 184,244 327,311 - $19.93

Class A 13,044,891 2,191,403 16.8% 1.2% 18.0% 114,582 287,414 - $23.13

Class B 9,152,249 2,226,635 24.3% 0.4% 24.7% 13,479 (33,496) - $19.36

Class C 5,883,868 1,627,207 27.7% 0.2% 27.8% 56,183 73,393 - $15.67

O’Hare 13,419,618 2,667,513 19.9% 0.6% 20.5% 3,866 87,954 - $23.15

Class A 7,085,712 1,157,411 16.3% 0.6% 16.9% (121,798) (90,591) - $28.32

Class B 3,374,565 797,372 23.6% 0.9% 24.5% 67,990 65,764 - $20.84

Class C 2,959,341 712,730 24.1% 0.3% 24.4% 57,674 112,781 - $16.64

South Suburbs 2,453,729 586,957 23.9% 0.0% 23.9% (7,816) 16,655 - $16.13

Class A 263,000 90,349 34.4% 0.0% 34.4% 43 8,904 - $16.19

Class B 1,315,323 273,595 20.8% 0.0% 20.8% (858) 28,135 - $17.32

Class C 875,406 223,013 25.5% 0.0% 25.5% (7,001) (20,384) - $14.50

West Cook 1,098,104 369,254 33.6% 0.0% 33.6% 10,910 27,239 - $16.47

Class A 0 0 0.0% 0.0% 0.0% 0 0 - -

Class B 88,800 13,453 15.1% 0.0% 15.1% 0 (5,843) - $25.00

Class C 1,009,304 355,801 35.3% 0.0% 35.3% 10,910 33,082 - $16.15

Total Suburban 109,992,775 21,253,517 19.3% 0.8% 20.1% 467,587 670,091 - $21.46

Class A 42,043,196 6,162,151 14.7% 1.3% 15.9% 88,790 336,970 - $25.76

Class B 43,973,797 9,540,682 21.7% 0.6% 22.3% 238,716 14,078 - $21.06

Class C 23,975,782 5,550,684 23.2% 0.2% 23.4% 149,081 319,043 - $16.62

Figure 1: Suburban Statistics

Source: CBRE Research, Q2 2014. *Total Vacancy Rate May Not Add Up Due To Rounding.

Figure 2: Unemployment

IllinoisNational

7.2%6.1%

Chicago 7.2%

0%3%6%9%

12%

Q1 20

12Q2

2012

Q3 20

12Q4

2012

Q1 20

13Q2

2013

Q3 20

13Q4

2013

Q1 20

14Q2

2014

Source: Bureau of Labor Statistics, June 2014.

Submarket Class/StoriesGross Asking Lease Rates PSF

East-West Tollway Class B/Single Story $18.66

Class B/Multi-Story $21.47

North Suburban Class B/Single Story $18.91

Class B/Multi-Story $24.86

Northwest Suburbs Class B/Single Story $15.84

Class B/Multi-Story $20.58

Total Suburban Class B/Single Story $17.73

Class B/Multi-Story $21.78

Figure 3: Rental Comparison

This comparison was created in order to further differentiate Class B asking rates in submarkets where there is an inventory of over 8 million sq. ft. of Class B space.Source: CBRE Research, Q2 2014.

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Figure 5: Direct Vacancy/Gross Asking Rate

Figure 7: Gross Weighted Asking Rates Figure 8: Large Available Blocks of Space

Gross weighted asking rates increased slightly, up $0.14 since Q1 2014, registering at $21.46 per sq. ft.

Class A properties had an average asking rate of $25.76 per sq. ft., an increase of $0.07 from Q1 2014. Class B properties had an average asking rate of $21.06 per sq. ft., an increase of $0.01 from Q1 2014.

There are currently 25 blocks of space available over 100,000 sq. ft. totaling 4,229,493 sq. ft. The number of available blocks between 50,000 sq. ft. and 100,000 sq. ft. is 53, totaling 3,733,088 sq. ft. Lastly, there are 158 blocks of available space between 20,000 sq. ft. and 50,000 sq. ft., totaling 4,798,778 sq. ft.

Figure 6: Net Absorption/Construction Deliveries

Direct vacancy decreased during Q2 2014 to 19.3%. The current rate is 110 bps lower than this time last year. The gross weighted asking rate was $21.46 for Q2 2014, up $0.47 from one year ago.

The positive net absorption for Q2 2014 was 476,587 sq. ft., bringing the year-to-date total to 670,091 sq. ft. No multi-tenant projects are currently under construction.

Figure 4: Top Lease Transactions

Tenant Size (SF) Address Transaction Type

AbbVie, Inc. 539,568 26525 N Riverwoods Blvd, Mettawa Relocation/Sublease

Xerox Corporation 89,817 5500 Pearl St, Rosemont Renewal

GSA (DHS-ICE) 81,493 1 Tower Ln, Oak Brook Renewal

DuPage Medical Group 63,320 1100 W 31st St, Downers Grove Renewal

Fortune Brands Home & Security 53,170 520 Lake Cook Rd, Deerfield Renewal/Expansion

Weber-Stephens Products 47,980 2900 Golf Rd, Rolling Meadows New Lease

5%10%15%20%25%

$19$20$21$22$23

2009 2010 2011 2012 2013 YTD 2014

Direct Vacancy Rate 19.3%Gross Weighted Asking Rate $21.46

New Construction Deliveries 0 SFYTD Net Absorption 670,091 SF

-2,500

-1,500

-500

500

1,500

2009 2010 2011 2012 2013 YTD 2014

$18$20$22$24$26$28

2009 2010 2011 2012 2013 2014

Class AClass B

$25.76$21.06

Total Suburban $21.46

020406080

20,000-49,999 SF 50,000-99,999 SF 100,000 SF +

Class BClass C

5,902,611 SF1,526,219 SF

Class A 5,332,529SF

Source: CBRE Research, Q2 2014.

Source: CBRE Research, Q2 2014. Source: CBRE Research, Q2 2014.

Source: CBRE Research, Q2 2014.Source: CBRE Research, Q2 2014.

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CONTACTS

Chicago Office ResearchClinton RidgewellSenior Research AnalystChicago ResearchCBRE311 S Wacker Dr, Suite 400Chicago, IL 60606t: 312 935 1919e: clinton.ridgewell@cbre.com

For more information about this Local MarketView, please contact:

Jeremiah OlsenResearch AnalystChicago ResearchCBRE311 S Wacker Dr, Suite 400Chicago, IL 60606t: 312 297 7693e: jeremiah.olsen@cbre.com

Global Research and Consulting

This report was prepared by the CBRE U.S. Research Team which forms part of CBRE Global Research and Consulting – a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe.

Disclaimer

Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

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