Downtown Chicago Report First Quarter 2010

1. 1Q 2010
CHICAGO
Report
Report
CBD
S T U D L E Y O F F I C E M A R K E T A N D S PA C E D ATA R E P O R T
MARKET HIGHLIGHTS Tenant Retention Efforts Prevail
AVAILABILITY RATES STABLE
Downtown Chicago’s overall availability
rate increased to 17.5%, up by 0.1 pp from Some Movement, but Little Traction
last quarter and 2.0 pp from a year ago. As 2009 ended, leasing activity surged to 3.3 msf and demand for office space seemed to be
The Class A rate ticked down by 0.1 pp headed in a positive direction. Leasing retreated in the first quarter, declining by more than 40% to
from last quarter to 19.2%, but rose by 2.9 1.9 msf, and any sense of momentum has dissipated. Net absorption in the CBD improved during
pp from a year ago. the first quarter (particularly in Class B properties in the Central Loop and East Loop), but still
remained in negative territory overall. Renewals dominated leasing activity and firms shed more
ASKING RENTS DECLINE space. Downtown locked in many of its key tenants for a few more years, and attracted several
companies from the suburbs, as landlords extended aggressive concession packages.
Overall asking rent dropped by 1.2% in
the first quarter, declining to $28.86. Class On a positive note for tenants, occupancy costs continued to fall. Asking rents fell for the fifth
A rent fell by 1.0% to $31.02. Overall and straight quarter, decreasing by 1.2% from $29.22 to $28.86. The overall availability rate was stable
Class A rents declined by 10.9% and for the first time since 2008, remaining at 17.5%. The Class A rate ticked down from 19.3% to
13.4%, respectively, from a year ago. 19.2%. More importantly, a painful 22-month string of declines in office-using employment – which
lasted from February of 2008 to December of 2009 – finally ended in January with the addition
LEASING ACTIVITY PLUMMETS of 6,308 jobs. The financial and professional/business services sectors both posted increases of
about 3,000 jobs and the Chicago region could get an additional temporary boost from Census
Deal volume plunged by 42.2% quarter- hiring in the coming months. Preliminary numbers from February show a loss of just under 1,500
on-quarter, falling from 3.3 msf to 1.9 msf. jobs but the worst part of the layoffs appears to be behind us in the region.
Four-quarter trailing leasing rose by 9.0%,
attaining 7.8 msf. Above-average leasing Although employment seems to be stabilizing, growth in the regional economy is expected to
volume in the fourth quarter of last year remain lackluster during 2010. Businesses remain tentative and reluctant to move forward with
boosted the leasing totals. long-term plans until they have more confidence in the recovery. This climate aligns with concerted
efforts by landlords to retain tenants. Several relocations helped plug a few of the substantial holes
in many buildings’ rosters, but as firms moved they generally left behind a larger amount of space
than they moved into. Law firms and trading firms generated the majority of the expansions in the
quarter, most involving additions of one or two floors, as these firms found the pricing on quality
space too tempting to resist. Companies headquartered in other markets trying to expand their
presence in the Chicago region were also active.
One of the most active buildings this quarter – UBS Tower at One North Wacker – shored up its
tenant roster through several early renewals. Such lease restructures do little to absorb space,
particularly since most firms shed space as they rework their agreements, but these transactions
CLASS A TRANSACTION BAROMETER CLASS B TRANSACTION BAROMETER
Under OneQtr Over One Qtr Under OneQtr Over One Qtr
50,000 sf Change 50,000 sf Change 50,000 sf Change 50,000 sf Change
Average Term: 10 years 10 years Average Term: 7 years 10 years
Concessions: Concessions:
Free Rent 10-15 months 10-18 months Free Rent 6-12 months 8-15 months
Tenant Improvements $55-$75/sf $60-$80/sf Tenant Improvements $45-$65/sf $55-$70/sf
Other Various Various Other Various Various
Outlook: Ample Class A space remains available and leasing activity retreated to Outlook: Deal volume was anemic during the first quarter. A few leases were signed
lackluster levels in the first quarter. Concessions will remain elevated in Class B and C properties, but given the decline in effective rents in
throughout 2010. Class A space, landlords in older properties will find it tough to compete.
Up Down Unchanged

2. ($/sf)
Rental Rate Trends are mutually beneficial to landlords and tenants – helping both avoid additional out-of-
$40
$35.83
pocket expenditures at a time when most companies are strapped for cash. In the largest
$31.02
$35 transaction of the first quarter, UBS, which had a lease expiration approaching in 2012,
$30 renewed for 393,000 sf. UBS was reportedly considering a move to its headquarters in
$25 $28.97 Manhattan. Although UBS extended its lease by ten years, it will relinquish about 116,200
$26.74
$20 sf. Barnes & Thornburg (83,000 sf) and Sedgwick Detert Moran & Arnold LLP (19,346 sf)
$15 both renewed their leases in the last few months. Indianapolis-based Barnes & Thornburg
$10 increased its occupancy by 17,000 sf, but Sedgwick Detert shed about 9,000 sf.
$5 Class A Class B
$0 In the largest relocation of the quarter, Combined Insurance Company of America signed a
1Q09 2Q09 3Q09 4Q09 1Q10 99,204-sf lease at 111 E. Wacker. Combined Insurance plans to move about 500 employees
from a call center and customer service operation center in the Northwest submarket to the
(msf)
Four-Quarter Trailing Leasing Activity* space previously occupied by the Federal Home Loan Bank of Chicago. The lease received
4.5 a critical boost from the state’s Department of Commerce and Economic Opportunity,
4.0 4.2 which provided about $2.7 million in state tax credits to be spread out over ten years. The
3.4
3.5
3.6
building, which signed 540,000 sf in leases last year, faces another key tenant loss in 2011
3.0
– Blue Cross Blue Shield, which currently occupies 230,000 sf, is expected to relocate to
2.5
2.0
300 E. Randolph in 2011. In a much smaller relocation, Ogletree Deakins Nash Smoak &
2.3
1.5
Stewart, which has occupied about 19,000 sf at 20 S. Clark since the 1980s, decided to
1.0 Class A move to 18,000 sf at 155 N. Wacker even though it has two years remaining on its current
0.5
*Sum of leasing activity in prior four quarters
Class B lease.
0.0
1Q09 2Q09 3Q09 4Q09 1Q10 A year ago it would have seemed implausible, but financial services firms are once again
making some of the most aggressive moves in the leasing market. Nico Holdings, currently
(%) Availability Rate Trends located at 311 S. Wacker, is nearly doubling its space – the proprietary trading firm signed
25% for a full floor at 222 W. Adams. Another trading firm, Peak6, expanded and extended
19.2%
20%
its agreement at the Chicago Board of Trade Building. Peak6 doubled its footprint in the
16.3%
building, adding two floors that formerly housed the Chicago Trading Company. However,
15% 141 W. Jackson’s gain will be 303 E. Wacker’s loss – Peak6’s on-line brokerage division,
14.8% 15.9%
OptionsHouse LLC, and its on-line news organization, Options News Network, will move
10%
from 303 E. Wacker to the Chicago Board of Trade Building. Additionally, Ronin Capital
5% announced that it would move from 43,100 sf at 230 S. LaSalle to 70,000 sf at 350 N.
Class A Class B Orleans. This transaction could involve tax incentives from the City of Chicago as the firm
0% was considering a move to Manhattan, California or London. Kaye Scholer’s renewal and
1Q09 2Q09 3Q09 4Q09 1Q10
expansion at Three First National Plaza was one of the quarter’s largest expansions. The
Manhattan-based law firm picked up an extra floor and extended its lease on the 41st floor
Contiguous Block Supply
of the building for a total of 48,782 sf
12 # of Blocks over 100,000 sf
1.8
1.9
Combined sf of Contig Blocks (msf)
Combined sf - Contig
10
# of Contig Blocks over 50,000 sf
Blocks 1.6 Sales Activity Increasing
8 1.4 Compared to the suburbs, investment sales Downtown have been relatively restrained. This
6
1.0
0.9 1.1 is a testament to the CBD’s ability thus far to avoid fire sales. More than two-thirds of the
0.9 office properties sold in the Chicago region since the beginning of 2009 were completed in
4
0.5 0.6 the suburbs – 39 office properties with a total sales volume of just under $400 million were
2
0.4
sold with an average price psf of $95.78. In contrast, only 15 properties have changed
0.2
0 0.1
hands in the CBD since the start of 2009, with an average price psf of $183.00 – about twice
West Loop Near North East Loop Central LaSalle St that in the suburbs. Four sales have accounted for about 80% of the $383.6 million in sales
Loop
volume since the start of 2009 in the CBD. The sale of the FBI Chicago field office alone, for
MAJOR TRANSACTIONS
Tenant Sq Feet Address Market Area
UBS 393,000 1 N Wacker Dr West Loop
Combined Insurance Company of America 99,204 111 E Wacker Dr East Loop
Akzo Nobel Polymer Chemicals, LLC 90,138 525 W Van Buren St West Loop
Barnes & Thornburg 83,000 1 N Wacker Dr West Loop
Peak6 80,000 141 W. Jackson Blvd West Loop
Ronin Capital 70,000 350 N Orleans St Near North
Kaye Scholer, LLP 48,782 70 W Madison St Central Loop
Littler Mendelson, PC 36,771 321 N Clark St Near North
Nico Holdings LLC 32,420 222 W Adams St West Loop
Federal Home Loan Bank of Chicago 30,854 200 E Randolph St East Loop
State Farm 26,554 120 N LaSalle St LaSalle Street
Intercontinental Exchange 23,400 353 N Clark St Near North
National Marine Manufacturers Association 21,800 231 S LaSalle St LaSalle Street
Sedgwick Detert Moran & Arnold LLP 19,346 1 N Wacker Dr West Loop
Rex Electric & Technologies, LLC 18,000 200 W Monroe St West Loop
Sum of Top 15 Leases 1,073,269 Sum of 1st Qtr Leasing Activity 1.9 MSF

3. $170.0 million at the start of 2009, represented about 40% of the sales volume. Between Overall Rental Rate Comparison
January and October 2009, only one sale of more than $10 million was completed. Near North $33.13
New York-based Berkley Properties' acquisition of 180 N. LaSalle for approximately West Loop $29.50
$72.2 million may be a sign of things to come in 2010 and 2011. The final price works out
Central Loop $29.04
to a $50-million reduction from the $124 million that Younan Properties had reportedly
agreed to pay for the building in late 2008. This agreement collapsed when Younan was Downtown Total $28.86
unable to secure financing. Berkley still must obtain approval to assume $61.1 million of
US Index $28.59
debt tied to the property.
LaSalle Street $28.06
Landlords and tenants are keeping a close eye on the saga surrounding Tishman
Michigan Ave $27.39
Speyer’s efforts to renegotiate terms on a $1.4-billion loan package with the Federal
Reserve Bank of New York (FRBNY). Resolution of this standoff, which is expected in East Loop $26.21
the next several months, could help prevent the six buildings Tishman acquired in 2007
South Loop $20.16
from being hit with the label of “zombie buildings.” Such buildings are still standing, but Market
their leasing has flat lined as prospective tenants can not be certain that landlords will be Type Submarket
able to follow through on tenant improvements and other negotiated concessions in the
New $37.83
near term. A few months ago, in response to Tishman’s default on a mezzanine portion
of the loan, the FRBNY seized a reserve fund Tishman was using to pay commissions Existing Direct $28.17
and improvement allowances. The seizure of the fund has limited Tishman to negotiating
Sublet $18.87
cashless leases and offering rental rate abatement in lieu of improvement allowances.
Tishman has been trying to rework the loan and, based on its approach with Stuyvesant ($/sf) $0 $10 $20 $30 $40
Town in Manhattan and the Archstone Smith acquisition, does not appear willing to inject
more of its own capital into the portfolio. In other instances, lenders have been willing to
extend loans, giving the landlord an opportunity to shore up cash flow, and providing time Availability Rate Comparison
for the value of the asset to recover. While Tishman's properties are among the most Market
South Loop 1.8%
prominent buildings facing challenges, the company is not alone. Behringer Harvard Submarket
is attempting to negotiate a loan extension tied to a $509 million loan underlying 440
S. LaSalle and two other Downtown properties. Some savvy tenants are approaching Near North 14.4%
negotiations in these properties warily
Central Loop 15.0%
The recent 2010 Studley Effective Rent Index (SERI) indicates how competitive
concession packages have become in the Chicago CBD and suburbs. SERI, which Michigan Ave 17.0%
analyzes terms on leases signed during 2009 in Class A properties, reports that the value
of concession packages in the Chicago region spiked annually by 16.7% to $105.00. Downtown Total 17.5%
Only New York City and Washington, DC registered higher concession packages and,
relative to gross rents, the true value of packages in Chicago was the highest for a major
US Index 18.7%
U.S. CBD. Tenant effective rents (the cost of occupancy for tenants) fell for the second
straight year, declining to $23.66 in 2009 – just above the 2005 rate of $22.76.
West Loop 18.9%
ABOUT OUR FIRM LaSalle Street 19.3%
is the only global tenant advisory firm with a pure tenant representative delivery platform.
Founded in 1954, Studley pioneered this conflict-free business model. Today, with 19 offices nationwide East Loop 21.0%
and an international presence through its London office and AOS Studley throughout Europe, Studley pro-
vides strategic real estate consulting services to top-tier corporations, law firms, nonprofits, government (%) 0% 5% 10% 15% 20% 25%
agencies and institutions of higher education. Information about Studley is available at www.studley.com.
EMPLOYMENT TRENDS
Millions Chicago Millions National
4.80 2.0% 140 3.0%
Total Empl. % Ann. Change Total Empl. % Ann. Change
4.70 138
1.0% 2.0%
4.60 136
0.0% 1.0%
4.50
134
4.40 -1.0% 0.0%
132
4.30 -2.0% -1.0%
130
4.20
2010
-3.0% -2.0%
4.10 128
2010
-4.0% 126 -3.0%
4.00
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
3.90 -5.0% 124 -4.0%
Source: Bureau of Labor Statistics Source: Bureau of Labor Statistics
STUDLEY OFFICE MARKET AND SPACEDATA REPORT

4. MARKET SNAPSHOT: 1Q 2010
LEASING & ABSORP-
MAP SUBMARKET TOTAL TION
AVAILABLE SF AVAILABILITY RATE ASKING RENTS PER SF
Inventory LEASING- Qtrly % 1 pp 1 % 1
SF Last Net This Change Last Yr This Change Last Yr This Change Last Yr
(1,000’s) 12 Abs Qtr from Qtr Ago Qtr from Last Qtr Ago Qtr from Qtr Ago
(1)
Mos Last Qtr Qtr Last Qtr
West Loop 45,663 3,741 -589 8,641 -1.0% 8,729 8,061 18.9% -0.2% 19.1% 17.7% $29.50 -0.9% $29.77 $34.46
1
West Loop - Class A 29,761 3,139 -416 5,698 -2.8% 5,861 5,328 19.1% -0.5% 19.7% 17.9% $30.33 0.6% $30.16 $36.26
2 868 18 5% 18 0% 17 2% $19 15 $29 06 $30 71
LaSalle Street 15,145 551 -137 2,922 2.3% 2,856 2,608 19.3% 0.4% 18.9% 17.2% $28.06 -1.0% $28.35 $30.72
2
LaSalle Street - Class A 4,734 222 -83 968 -0.2% 970 834 20.4% 0.0% 20.5% 17.6% $31.03 -1.9% $31.62 $33.26
1 887 18 8% 18 1% 17 0% $26 56 $26 73 $29 49
Central Loop 18,265 1,026 199 2,748 -1.9% 2,800 2,546 15.0% -0.3% 15.3% 13.9% $29.04 1.0% $28.76 $30.72
3
Central Loop - Class A 9,086 219 21 927 -3.4% 960 772 10.2% -0.4% 10.6% 8.5% $33.15 0.1% $33.12 $38.04
1 840 19 8% 20 1% 19 3% $27 07 $26 59 $27 71
East Loop 21,101 1,072 188 4,428 -0.7% 4,461 3,720 21.0% -0.2% 21.1% 17.6% $26.21 -1.9% $26.73 $30.32
4
East Loop - Class A 6,083 158 -19 1,856 5.6% 1,757 1,465 30.5% 1.6% 28.9% 24.1% $27.20 -2.2% $27.81 $34.07
/
2 704 17 1% 18 0% 15 0% $25 68 $26 21 $28 29
Michigan Avenue 7,309 185 -29 1,243 14.2% 1,089 1,036 17.0% 2.1% 14.9% 14.2% $27.39 -8.0% $29.76 $31.83
5
Michigan Avenue - Class A 4,354 90 -75 818 14.6% 714 579 18.8% 2.4% 16.4% 13.3% $28.64 -7.2% $30.86 $32.87
374 14 4% 12 7% 15 5% $24 66 $26 83 $30 23
Near North 17,212 707 -622 2,478 -1.3% 2,511 1,969 14.4% -0.2% 14.6% 11.4% $33.13 0.0% $33.14 $32.61
6
Near North - Class A 6,537 130 -589 1,373 -4.5% 1,438 920 21.0% -1.0% 22.0% 14.1% $37.53 0.4% $37.37 $38.90
1 073 10 3% 10 1% 9 8% $26 58 $26 25 $27 21
South Loop 4,310 47 -5 76 17.6% 64 68 1.8% 0.3% 1.5% 1.6% $20.16 2.7% $19.63 $18.89
7
South Loop - Class A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
64
#REF! 1 8%
#REF! 1 5%
#REF! 1 6%
#REF! $20 16
#REF! $19 63
#REF! $18 89
#REF!
DOWNTOWN CHICAGO TOTAL 129,005 7,738 -995 22,535 0.1% 22,510 20,007 17.5% 0.1% 17.4% 15.5% $28.86 -1.2% $29.22 $32.38
1-7
DOWNTOWN CHICAGO TOTAL -
60,553 4,158 -1,161 11,640 -0.5% 11,699 9,897 19.2% -0.1% 19.3% 16.3% $31.02 -1.0% $31.34 $35.83
Class A
(1) Percentage point change for availability rates.
Unless otherwise noted, all rents quoted throughout this report are average asking gross (full service) rents psf.
The information in this report is obtained from sources deemed reliable, but no representation is made as to the
accuracy thereof. Statistics compiled with the support of The CoStar Group.
Copyright © 2010 Studley
Michigan Avenue
6
A
CHICAGO CONTACTS
Near North Near North
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Suite 2700
Chicago, IL 60606
Michigan Ave
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Columbus
Fulton
5
Wells
Clark
State
Co-Branch Managers
Kennedy Expressway
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Richard Schuham, EVP - rschuham@studley.com West Loop
est
LaSalle Street
Central Loop
Joseph Learner, EVP - jlearner@studley.com
East Loop
1
Lake Shore
Lake Michigan
Corporate Media Contact
Esther Rose - Director of Public Relations Jackson
erose@studley.com 7 South Loop
Eisenhower Expressway
STUDLEY OFFICE MARKET AND SPACEDATA REPORT