RECI July 2016 Metro Chicago Core MOB Snapshot

Real Estate Counselors International, Inc.
1 July 2016Metro Chicago Core MOB Market
A market report for healthcare real estate professionals 2nd
Quarter 2016
METRO CHICAGO CORE MARKET MEDICAL OFFICE BUILDING SNAPSHOT
Quarterly Change in U.S. Gross Domestic
Product, 2005 Q1 to 2017 Q1
Sources: U.S. Bureau of Economic Analysis and Real Estate Counselors
International, Inc.
Quarterly Change in United State and Metro
Chicago Employment: 2008 - 2015
Sources: United States Bureau of Labor Statistics, Moody’s Analytics, and Real
Estate Counselors International, Inc.
Metro Chicago Core MOB Market
Total Private Sector Job Growth
Sources: Illinois Department of Employment Security and Real Estate Counselors
International, Inc.
*Note: MOB jobs are defined to include selected
ambulatory healthcare establishments, including: (1)
Offices of Physicians; (2) Outpatient Care Centers,
(3) Offices of Other Health Practitioners; and (4)
Medical and Diagnostic Laboratories.
Executive Summary
We remain in the fourth longest expansion in the nation's economic
history, according to data available from the U.S. Bureau of Economic
Analysis. In fact, nearly 15 million jobs have been created since mid-2010.
Although real GDP growth over the last three quarters has been weak,
consumer spending remains strong and Moody’s Analytics believes that
this sector of the economy will drive the U.S. expansion in the second half
of the year. Real consumer spending surged in the 2nd
quarter, the fastest
rate since the 4th
quarter of 2014. U.S. job gains remain strong, with no
indication that this will not continue. Nationally, the healthcare sector
including both Hospital and Medical Office Building jobs* are growing at a
strong pace and are forecast to continue their recent strong growth trend,
according to Moody’s Analytics’ forecast model.
Job growth in metro Chicago is forecast to remain moderately strong
through at least year-end 2017, a direct result of growth in Construction,
Leisure & Hospitality, Professional & Business Services and Education &
Health Services jobs. Private sector construction, principally construction
of industrial, office and multifamily structures is fueling most of the growth
in construction jobs.
The metro Chicago Core MOB market, which includes Cook, DuPage
and Lake Counties, contains 3.0 million total private sector jobs and
436,000 jobs in the Healthcare and Social Assistance sector. Between
2012 and 2015 alone, this sector has added 35,000 jobs to the core
market, reflecting an annual average increase of nearly 3%.
Metro Chicago Core MOB Market Highlights as of the 2
nd
Quarter 2016
 The average gross asking rent was $22.36 PSF, reflecting steady
increases since 2012, and despite recent negative net absorption.
 Negative net absorption in the first half of 2016 was largely driven
by the vacation of a single medical office building (153,000 square
feet) located on the near south side of the city of Chicago.
 Vacancy Rate: 13.7%, up from 12.3% in the 4th
quarter 2015;
above pre-recession level of about 10.0%.
 Square feet of MOB’s under construction remains historically low at
only 0.84% of existing inventory; approximately 20 other medical
office buildings totaling 850,000 square feet, are proposed for
construction.
Metro Core MOB Market Outlook
The Metro Chicago Core MOB Market is showing signs of slowing
space demand but a continued trend of rent growth, as new supply
remains low. The vacancy rate is expected to decline over the long-term,
but may remain flat over the short-term. Still, the long-term demand
outlook for MOB space in the Metro Chicago Core Market is positive. We
expect MOB job growth to remain strong and in turn fuel stronger demand
for MOB space.
‐10.0%
‐8.0%
‐6.0%
‐4.0%
‐2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
GDP Annualized Percentage Change
Year/Quarter
‐8%
‐7%
‐6%
‐5%
‐4%
‐3%
‐2%
‐1%
0%
1%
2%
3%
4%
Annualized Quarterly % Change
Year/Quarter
United States Chicago‐Naperville‐Elgin, IL‐IN‐WI Metropolitan Statistical Area
16,652
‐16,096
‐160,302
‐92,837
52,756 56,531
44,090
53,849
46,607
‐180,000
‐160,000
‐140,000
‐120,000
‐100,000
‐80,000
‐60,000
‐40,000
‐20,000
0
20,000
40,000
60,000
80,000
2007 2008 2009 2010 2011 2012 2013 2014 2015
Change in Jobs

Quarter 2016
Medical Office Building* and
Hospital Jobs:
United States and Metro Chicago
Sources: U.S Bureau of Labor Statistics, Moody’s Economic.com and Real Estate
Counselors International, Inc.
Demand for off-campus medical office buildings
(MOBs) over the next several years, will be fueled by
increased focus on outpatient services by hospitals
and physician groups; continued movement of
outpatient services to superior off-campus locations
with high identity and superior accessibility; and an
increasing diversity in the mix of practice types at off-
campus locations, including those traditionally found at
hospital locations.
Trend of MOB Average Gross Asking Rent
for Metro Chicago Core Market
Sources: CoStar Group, Inc. and Real Estate Counselors International, Inc.
Note: All figures represent annual quarterly averages, not quarter-end figures.
Core Market Vacancy Rate by Class
Note: All figures presented in this graph reflect quarter-end statistics, not
quarterly averages.
METRO CHICAGO CORE MARKET MOB DEMAND/SUPPLY
After more than two years of positive net absorption, the market
exhibited negative absorption in the 2nd
quarter of 2016. Although net
absorption was positive in the 1st
quarter, absorption in the 2nd
quarter was
negative, a trend, this significant, not seen since 2013. However, upon
further investigation, we determined that the negative absorption was
largely driven by the vacation of a single medical office building (a 153,000
square foot building) located on the near south side of the city of Chicago.
Despite little new construction in the first half of 2016, the vacancy rate was
reported at 13.7% at the end of the 2nd
quarter 2016 or 70 basis points
higher than the 2nd
quarter 2015.
Metro Chicago Core Market Demand/Supply: Deliveries,
Absorption, Vacancy and Change in Average Rent
Notes: (1) Percentage change in rent YTD 2016 Q2 represents the change since year-end 2015.
(2) All statistics represent annual quarterly averages, not quarter-end figures.
Metro Chicago Core Market & Outlying Market
Demand/Supply Indicators:Q2 2015 and Q2 2016
Ind ic at o r
C hic ag o
M e t ro - C o re
M arke t ( 1)
C hic ag o M e t ro -
O ut ly ing M arke t
( 2 )
N umb e r o f P ro p e rt ie s 1,154 705
To t al N e t R e nt ab le S q uare F e e t 20,375,733 11,273,774
V ac anc y R at e , 2 0 16 Q2 13.7% 11.5%
V ac anc y R at e , 2 0 15 Q2 13.0% 13.4%
B as is P o int C hang e in V ac anc y 2 0 15 Q2 t o 2 0 16 Q2 70.00 -190.00
Gro s s A s king R e nt , 2 0 16 Q2 $22.36 $15.25
Gro s s A s king R e nt , 2 0 15 Q2 $21.91 $15.70
% C hang e in A s king R e nt 2 0 15 Q2 t o 2 0 16 Q2 2.1% -2.9%
S p ac e A b s o rb e d 2 0 15 Q2 t o 2 0 16 Q2 (i.e, Last 4
quarters)
-106,003 309,701
A b s o rp t io n R at e -0.6% 3.1%
S p ac e Le as e d 2 0 15 Q2 t o 2 0 16 Q2 (i.e, Last 4 quarters) 567,225 290,018
Le as ing R at e 3.2% 2.9%
Sources: CoStar Group and Real Estate Counselors International, Inc.
Notes:
(1) MOBs containing 2,000 square feet or more located in Cook, DuPage and Lake Counties.
(2) MOBs containing 2,000 square feet or more located in 17 outlying counties.
(3) All figures presented in this table reflect quarter-end figures, not quarterly averages.
95.0
97.5
100.0
102.5
105.0
107.5
110.0
112.5
115.0
117.5
120.0
122.5
125.0
127.5
130.0
132.5
135.0
137.5
Employment Growth Index Q4 2006 = 100.0)
Metro Chicago ‐ MOB Jobs United States ‐ MOB Jobs
Metro Chicago ‐ Hospital Jobs United States ‐ Hospital Jobs
$21.95
$22.84 $22.59
$23.03
$21.68
$21.03 $21.08
$21.47
$21.75
$22.40
$16.00
$17.00
$18.00
$19.00
$20.00
$21.00
$22.00
$23.00
$24.00
$25.00
$26.00
$27.00
$28.00
$29.00
94.00
95.00
96.00
97.00
98.00
99.00
100.00
101.00
102.00
103.00
104.00
105.00
106.00
107.00
2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD
2016
Q2
Gross Asking Rent, Per Square Foot
Rent Growth Index (2007 = 100.0)
Asking Rent Gross Rent Growth Index
18.8%
13.2% 13.0%
13.7%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
Class A Class B Class C Total of
Class A, B & C
2nd Quarter 2016 Vacancy Rate
9.6% 9.6%
10.9%
10.9% 12.1% 12.3%
13.5%
12.5% 12.8%
13.7%
5.5%
4.0%
‐1.1%
1.9%
‐5.9%
‐3.0%
0.2%
1.9% 1.3%
3.0%
‐240,000
‐180,000
‐120,000
‐60,000
0
60,000
120,000
180,000
240,000
300,000
360,000
420,000
‐12.0%
‐9.0%
‐6.0%
‐3.0%
0.0%
3.0%
6.0%
9.0%
12.0%
15.0%
18.0%
21.0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD
2016 Q2
Square Feet (Deliveries and Absorption)
Percent (Vacancy Rate and % Change in Asking Rent
Deliveries Absorption Vacancy Rate % Change in Asking Rent

Quarter 2016
Chicago Core Market
Asking Rents by Class
quarterly averages.
Core market leasing (gross absorption) and net
absorption (i.e., space demand) has been
strongest in the Class A sector since year-end 2015.
Net absorption has been weakest in the Class B
sector. Although there is a moderate amount of
leasing activity, net absorption was flat in the first half
of 2016.
Chicago Core Market Leasing and
Absorption Rates by Class
quarterly averages.
Metro Chicago Core market MOB
Construction
Prior to the Great Recession, the gross asking rent for MOB space was
+$23.00 per square foot for the metro Chicago Core market, as a whole.
The average asking rent for all MOB space fell to a low of about $21.00 per
square foot at the end of 2012 and has steadily risen since that time.
Despite increasing vacancy over the past five years and small amount of
negative absorption during the 1st
half of 2015 and 2016, the average gross
asking rent continues to increase.
Of the three classes of properties, Class A MOBs exhibited the highest
vacancy rate at 18.8%, at the end of the 2nd
quarter. The Class B and
Class C vacancy rates were near 13% at the end of this same quarter.
Since the 2nd
quarter 2015, vacancy rates have declined for Class A
properties and increased slightly for Class B and C properties. The
market’s largest MOBs, encompassing just over 6.7 million square feet built
since 1979 exhibited a vacancy rate of 17.4% at the end of the quarter, as
shown in the table below.
Cl a s s A C l a s s B C l a s s C
To t a l
( C l a s s A, B
& C )
N umb e r o f P ro p e rt ie s 28 622 501 1,154 133
To t al N e t R e nt ab le S q uare F e e t 1,919,275 13,708,887 4,717,511 20,375,733 6,730,225
V ac anc y R at e , 2 0 16 Q2 18.8% 13.2% 13.0% 13.7% 17.40%
V ac anc y R at e , 2 0 15 Q2 20.6% 12.2% 12.6% 13.0% 14.90%
B a s is P nt C hg in V ac anc y 2 0 15 Q2 -
2 0 16 Q2
-180.00 100.00 40.00 70.00 250.00
Gro s s A s king R e nt , 2 0 16 Q2 $29.51 $21.67 $18.78 $22.36 $25.91
S p ac e A b s o rb e d 2 0 15 Q2 t o 2 0 16 Q2 34,216 -111,581 -20,678 -106,003 -168,292
A b s o rp t io n R at e 2.2% -0.9% -0.5% -0.6% -3.1%
S p ac e Le as e d 2 0 15 Q2 t o 2 0 16 Q2 133,776 340,579 89,531 567,225 238,201
Le as ing R at e 8.6% 2.9% 2.2% 3.0% 4.3%
Va ri a b l e s
B u i l d i n g s b y C l a s s
La rg e s t MOB s
( A l l C l a s s e s
o f B u i l d i n g s
wi t h 2 5 , 0 0 0
S q u a re Fe e t
o r Mo re a n d
B u i l t S i n c e
19 7 9 )
Note: All statistics presented in this table reflect quarter-end statistics, not quarterly averages.
At the end of the 2nd
quarter 2016, the Metro Chicago Core MOB
market inventory encompassed nearly 20.4 million square feet in 1,154
buildings, according to the CoStar property database.
There are presently seven medical office buildings under
construction, encompassing 1.8 million square feet of space. Five of
the seven buildings total approximately 176,200 square feet. The two large
buildings are the 1,056,000 square foot Ability Institute Building being
developed by the Rehabilitation Institute of Chicago and located at 355 W.
Erie Street, Chicago, IL (2017 delivery) and the 700,000 square foot
Northwestern Biomedical Research Tower located at 320 E. Huron Street,
Chicago, IL (2018 delivery).
Over the last five years a total of 736,000 square feet, representing only
3.6% of the total inventory was added to the Metro Chicago Core MOB
Market.
$29.51
$21.67
$18.78
$22.36
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
Class A, B & C
2nd Quarter 2016 Asking Rent
8.6%
2.9%
2.2%
3.0%
2.2%
‐0.9%
‐0.5% ‐0.6%
‐2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Class A, B & C
Space Leased/Absorbed as a % of Occupied Stock
Leasing Rate Absorption Rate
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
2000 Q4
2001 Q3
2002 Q2
2003 Q1
2003 Q4
2004 Q3
2005 Q2
2006 Q1
2006 Q4
2007 Q3
2008 Q2
2009 Q1
2009 Q4
2010 Q3
2011 Q2
2012 Q1
2012 Q4
2013 Q3
2014 Q2
2015 Q1
2015 Q4
% Under Construction / Inventory
Square Feet Under Construction
Square Feet Under Construction % Under Construction / Inventory

Quarter 2016
MOB Sales Capitalization Rates and Average
Annual Prices per Square Foot
Since 2006, Chicago core market MOB
investment sales have exhibited
capitalization rates that peaked around
9.8% in 2009 and reached a low of 7.3% in
the first half of 2016. The jump in the
average capitalization rate in 2014 resulted
from the sale of a number of smaller, older
medical office buildings in that year.
Investor Profile of MOB Investment Sales:
Transacted Since January 2011
Since January 2011, approximately 59% of
Core Market MOB sales volume represents
acquisitions by private equity firms. The
next largest share, estimated at 19%, is
associated with public REITs.
METRO CHICAGO CORE MARKET MOB INVESTMENT SALES TRENDS
Since 2011, approximately 45% of all MOB investment sales activity has
been concentrated in three Chicago submarkets – Near-North Suburban
Area, Eastern East-West Corridor and Western East-West Corridor.
There are 12 top buyers who each amassed over $12.0 million worth of
MOBs since 2011. On average, these buyers paid $258 per square foot
which is well above the market average per square foot sale price associated
with all MOB sales of the last five years. These portfolio or aggregate sales
ranged in price from $89.00 per square foot (Imperial Realty) to $591 per
square foot (Noel F. Danto).
Largest MOB Investment Sales since January 2011
Note: These data may include properties that are part of portfolios located in a few other metropolitan areas.
$148
$113
$148
$135
$133
$79
$194
$184
$159
$215 $217
7.7%
9.8%
7.6%
9.5%
7.3%
$25
$50
$75
$100
$125
$150
$175
$200
$225
$250
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
10.5%
11.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Sales Price Per Square Foot
Capitalization Rate
Average Price Per Bldg SF Average Cap Rate
19%
14%
59%
8%
REIT/Public Institutional
Private User
$0 $50 $100 $150 $200
Central Northwest Suburban
Far South Suburban
Joliet/Central Will
Gold Coast/Old Town
Far North Suburban
Far Northwest Suburban
North DuPage County
Melrose Park Area
O'Hare
Cicero/Berwyn Area
South Route 45
Lincoln Park
Central North Suburban
Northwest City
Near South Cook County
City of Chicago ‐ South
Schaumburg Area
Oak Park Area
Western East/West Corr
Eastern East/West Corr
Near North Suburban
Millions of Dollars
# Buyer Acquistion Total Square Feet Price PSF
1 MB Real Estate $159,365,903 562,167 $283
2 Griffin Capital Corporation $65,054,500 289,586 $225
3 Healthcare Trust of America, Inc. $54,000,000 139,200 $388
4 Harrison Street Capital $47,900,000 89,903 $533
5 Duke Realty Corporation $47,750,000 104,912 $455
6 Inland Real Estate Group of Companies, Inc. $44,115,684 132,919 $332
7 Cole Real Estate Investments $40,299,000 135,448 $298
8 MedProperties Group $38,495,000 233,644 $165
9 Imperial Realty Company $32,689,553 365,633 $89
10 Dupage Medical Group $20,600,000 72,600 $284
11 Patriot Equities L.P. $15,300,000 97,009 $158
12 Noel F. Danto $12,300,000 20,800 $591
Total/Average $577,869,640 2,243,821 $258

Quarter 2016
CORE MARKET AREA DEFINITION AND MOB INVENTORY

Sources: CoStar Group and Real Estate Counselors International, Inc.
Note: Medical office properties containing 2,000 square feet or more located in Cook, DuPage and Lake Counties
Real Estate Counselors International has relationships with healthcare providers, private equity firms, financial institutions,
developers, investors, government agencies, major corporations, and other public and private concerns. Among our specialties
are:
 Stark law Compliance
 Fair Market Value Rent Studies
 Property Appraisals
 Acquisition Due Diligence
 Disposition Pricing
 Forensic Due Diligence/Evaluations
 Portfolio Valuations
 Litigation Support/Dispute Resolution
 Market Feasibility Analysis
Since 2007, Real Estate Counselors International Inc. has performed a spring and fall survey of medical office buildings in the metro
Chicago market. Our proprietary database contains hundreds of contract and asking lease terms collected over the last several
years.
For More information, please contact: Thomas Amato, CRE at 312.332.4000 X101

RECI July 2016 Metro Chicago Core MOB Snapshot

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