MarketView Chicago Downtown Office Q3/2005 - Crain's Chicago ...

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CB Richard Ellis | Chicago Downtown Office | 3Q 2005 Market Rentable Area Direct Vacancy Rate % Net Absorption SF Under Construction SF Average Asking Net Lease Rate $ SF/YR Overall Vacancy Rate%* West Loop 39,913,855 16.3% 9,976 470,000 21.1% Class A 26,172,378 15.2% (1,027) 470,000 $15-$28 20.2% Class B 9,394,268 19.0% 99,511 — $7-$14 24.5% Class C 4,347,209 17.5% (88,508) — $6-$12 18.9% Central Loop 40,763,262 13.8% (270,977) 850,000 16.7% Class A 15,255,623 15.6% (106,008) 850,000 $12-$28 20.6% Class B 16,627,236 10.5% 89,452 — $7-$13 12.6% Class C 8,880,403 16.9% (254,421) — $5-$10 17.5% East Loop 21,652,474 18.6% (305,398) — 21.5% Class A 5,930,836 22.6% (242,852) — $11-$21 28.1% Class B 10,082,835 20.6% (14,235) — $7-$14 23.0% Class C 5,638,803 10.8% (48,311) — $5-$10 11.7% North Michigan 11,860,446 11.8% (62,118) — 14.4% Class A 4,357,168 13.7% (20,748) — $11-$21 16.6% Class B 6,685,711 11.3% 7,665 — $8-$15 14.2% Class C 817,567 4.6% (49,035) — $7-$13 4.6% River North 4,455,052 25.2% 42,363 — 30.5% Class A 382,436 25.7% 0 — $10-$16 25.7% Class B 2,459,111 33.1% 52,043 — $8-$13 42.2% Class C 1,613,505 13.1% (9,680) — $6-$11 13.8% Chicago CBD 118,645,089 15.7% (586,154) 1,320,000 19.3% * Includes Sublease Space UNEMPLOYMENT RATE 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% Chicago 6.4% IL State 6.1% US 4.9% Although the U.S. economic picture remained relatively unchanged for the most part, according to recent statistical measures, Illinois continues to see steady growth. The Bureau of Labor Statistics of the U.S. Department of Labor reported that non-farm employment dipped slightly by 35,000 in September and the unemployment rate was virtually unchanged at 4.8%. According to the Commerce Department, real gross domestic product (GDP) increased at an annual rate of 3.3% in the second quarter of 2005, down from 3.8% at first quarter 2005. 2.0% 1.0% 0.0% 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 Illinois’ employment picture showed improvement in third quarter as it posted an unemployment rate of 5.7%, down from 6.2% at second quarter, reported the Illinois Department of Employment Security. This was the seventh consecutive month of job growth, bringing 57,300 new jobs to the area since January. © 2005 CB Richard Ellis, Inc.
CB Richard Ellis | Chicago Downtown Office | 3Q 2005 VACANCY & NET ABSORPTION Absorption sf (586,154) Vacancy 15.7% AVERAGE ASKING LEASE RATES 1,000.0 20.0% Absorption sf (000's) 600.0 200.0 (200.0) (600.0) (1,000.0) (1,400.0) $30.00 18.0% 16.0% 14.0% 12.0% Vacancy % Gross Avg. Asking Rent $25.00 $20.00 (1,800.0) 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 10.0% $15.00 2000 2001 2002 2003 2004 1Q2005 2Q2005 3Q2005 Sq. Ft. Under Construction Overall, the CBD vacancy rate increased by 0.2% at third quarter to 15.7% from 15.5% at second quarter. The East Loop submarket showed the largest increase in vacancy during the quarter at 18.6%, up from 17.2% at second quarter. This is attributed to Deloitte & Touche vacating space 180 North Stetson and several tenants vacating Aon Center. Both the Central Loop and North Michigan Avenue submarket increased in vacancy to 13.8% and 11.8%, respectively, while the West Loop decreased to 16.3%. Net absorption for the quarter came in at negative 586,154 square feet and negative 254,664 square feet year-to-date. The West Loop and River North submarkets were the only to post positive net absorption at 9,976 square feet and 42,363 square feet, respectively. Year-to-date, the net absorption is much lower when compared to the same period in 2004 which reported negative 1,106,292 square feet. CONSTRUCTION ACTIVITY 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 2001 2002 2003 No new buildings were delivered in the third quarter, however, One S. Dearborn is on schedule to bring over 850,000 square feet to the market in the fourth quarter. Hines Interests LP submitted plans for a new skyscraper located at 300 N. LaSalle in the CBD to be designed by architect Jon Pickard. The year has already experienced over 2.5 million square feet of new construction year-to-date and by year-end this number will be more than 2004 and 2003 combined. 2004 1Q2005 2Q2005 3Q2005 Average asking net lease rates remained relatively unchanged during the quarter. For Class A space, the average asking net lease rate increased for the West and Central Loop submarkets reporting $15-$28 per square foot. The East Loop, North Michigan Ave and River North submarkets showed the same average net lease rates as second quarter reporting $11-$21, $11-$21 and $10-$16, respectively. The tenants market will continue until a marked improvement is made in the vacancy rate. Concessions are abundant such as free rent and construction allowances. MARKET OUTLOOK With only one quarter remaining in 2005, the Chicago downtown office market will continue its pattern of little to no improvement. Without job growth or new business, the market will be unable to overcome the current oversupply of office space both new and old thus remaining in its current state of high vacancy and negative net absorption. The delivery of One S. Dearborn will no doubt impact the overall CBD as tenants leave holes in other buildings to relocate into the new tower. With its delivery also comes over 275,000 square feet of vacant space. The investment market will remain active throughout the rest of the year with several other buildings changing hands before year end at low cap rates and high prices per square foot. © 2005 CB Richard Ellis, Inc.
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