MB Real Estate's 2011 2nd Quarter Chicago Market Overview

S E C O N DQ U A R T E R

2011 CHICAGOMARKET OVERVIEW

The Chicago Market Overv iew is publ ished quar ter ly by MB Real Estate.

To obta in addi t iona l copies or for fur ther in format ion, p lease contact :

KRYSTA BAVLSIKManager of Research and Analy t ics

or JACK GAVINResearch Coord inator

181 West Madison Street , Su i te 4700 Chicago, I l l ino is 60602

(312) 726-1700

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

CHICAGO

SECOND QUARTER

2011MARKET OVERVIEW SECTION TWO

CHICAGO CENTRAL BUSINESS DISTRICT

02 CBD Executive Summary

SUPPLY

03 New Developments04 Sublease Space05 Large Blocks of Direct Availability

DEMAND

06 Vacancy Rates07 Large Deals08 Absorption

FEATURES

09 Lease Comparables10 Investment Sales11 Forecast12 Submarket Map13 Market Statistics

TABLE OF CONTENTS

SECTION THREE

SUBURBAN CHICAGO

14 Suburban Chicago Executive Summary

SUPPLY

15 New Developments16 Sublease Space17 Large Blocks of Direct Availability

DEMAND

18 Vacancy Rates19 Large Deals20 Absorption

FEATURES

21 Gross Asking Rents22 Investment Sales23 Forecast24 Submarket Map25 Market Statistics

SECTION FOUR

ADDITIONAL INFORMATION

SECTION ONE

CHICAGO ECONOMY

01 Economic Analysis

26 Glossary27 About MB Real Estate

CH

ICA

GO

EC

ON

OM

IC A

NA

LYS

IS

1S E C O N D Q U A R T E R 2 0 1 1 | C H I C A G O M A R K E T O V E R V I E W

SECTION ONE

CHICAGO ECONOMYECONOMIC ANALYSIS

The Chicago-Joliet-Naperville, IL-IN-WI Metropolitan Statistical Area (MSA) has finally started to recover, though it lags the nationalrecovery. While the MSA is the business center of the Midwest and has a well-educated workforce, it is highly dependent on slow-growing and mature industries. Also, its cost of doing business is 8 percent higher than the national average.

National headwinds have the potential to throw Chicago's recovery off track. Hiring is well below levels typical of a recovery. GDPgrowth has decelerated. Debt reduction will impact all industries. All levels of government must reduce spending while consideringa tax increase. While this will inevitably lead to slower growth, it may be more sustainable in the long-term.

Total employment in the Chicago MSA declined 7.5 percent peak-to-trough and has only rebounded 1.3 percent since hitting itslow in December 2009. Without new jobs, economic growth is not likely to translate into increased office occupancy.

Despite the massive headwinds, companies such as GE Capital and Allscripts have announced that they will be bringing jobs toChicago in the near future. While many tenants are still consolidating and contracting, the signs of new growth are promising.

Chicago’s employment losses have yet to filter through the office marketThe Chicago MSA's economy warrants continued occupancy reductions to align with the employment market. Suburban Chicagocontinued to shed occupancy at a rapid pace, while Central Business District (CBD) occupancy improved during the quarter.

Underutilized space, often termed “shadow vacancy,” remains the biggest risk to the market. Many companies currently lease morespace than necessary after reducing their headcount during the recession. Due to long-term leases, their commitment to thisexcess space takes years to expire. Upon expiration, many tenants are choosing to contract consolidate locations to align withtheir needs, a process that will take several more years to filter through the market. The largest mitigating factor to the correlationbetween office occupancy and employment is confidence. If businesses are confident of future expansion, they may lease or renewspace ahead of necessity. Headlines suggest that some firms are expanding within the CBD, which could lead to that sentimentbecoming pervasive. Attractive lease terms may further entice tenants to act in advance.

MB Real Estate’s baseline office forecast still expects a substantial decline in occupancy over several upcoming quarters to correlatewith job losses. An alternative scenario, which is increasingly plausible, is that occupancy will be volatile, but still trend negativelyover time in the CBD, while losses in Suburban Chicago will be steadily negative. An optimistic scenario points to the relatively flatquarter and previous positive one in the CBD as an early sign of a turning point, where rental rates have fallen enough to warrantexpansion for some tenants before it is justified by employee headcount.

Sources: MBRE Research, BLS, Chicago Sun-Times, Crain’s Chicago Business, Financial Times, Moody’s Economy.com, National Real Estate Investor

CHICAGO EMPLOYMENT WELL BELOW PEAK

CE

NTR

AL B

US

INE

SS

DIS

TRIC

T


SECTION TWO

CENTRAL BUSINESS DISTRICTEXECUTIVE SUMMARY

CBD VACANCY AND YEAR-TO-DATE ABSORPTION SUMMARY

Direct Vacancy2Q2011

AChange from

1Q2011B

Change from 1Q2011

CChange from

1Q2011Total

Change from 1Q2011

Central Loop 9.8% 0.3% 17.9% 0.6% 16.4% 1.2% 14.5% 0.6%East Loop 27.2% -1.1% 21.9% -1.6% 13.8% -0.1% 19.8% -1.0%N. Michigan Ave. 20.1% 0.5% 24.0% 1.0% 13.2% 0.1% 19.2% 0.6%River North 15.7% -0.9% 7.5% -1.4% 13.0% -0.9% 12.3% -1.1%South Loop 13.9% 0.7% 24.9% -0.8% 20.1% -0.1%West Loop 14.9% -0.5% 12.8% -0.4% 17.3% -0.5% 14.8% -0.5%CBD Chicago Total 15.0% -0.3% 17.5% -0.3% 15.3% 0.0% 15.9% -0.2%

Net Absorption2Q2011

A B C Total

Central Loop (32,289) (48,286) (93,197) ((173,772)

East Loop 54,897 163,427 (20,034) 1198,290

N. Michigan Ave. (21,064) (37,240) (19,176) ((77,480)

River North 37,212 74,842 18,942 1130,996

South Loop (6,812) (4,085) ((10,897)

West Loop 162,621 45,578 4,887 2213,086

CBD Chicago Total 194,564 198,321 (112,663) 280,223

Numbers in parentheses are negative

Chicago's CBD experienced a modest increase in occupancy. Leasing activity was strong as some of the largest tenants finallycommitted to decisions, although much of the impact will not be felt immediately.

Key Indicators:• For just the second time since the downturn, quarterly absorption was positive. Office occupancy is improving, failing to align

with job losses. Recent announcements of corporate expansion in the CBD are aiding the recovery by creating optimism withinthe market.

• Since employment data has not fully filtered through the market, it is likely that occupancy will vacillate between positive andnegative results each quarter, but ultimately trend negative. Large tenant movements have the potential to make any quarterpositive, but there is still too much underutilized space within the CBD to predict a recovery.

• The East Loop dominated leasing activity this quarter, but the net result is not clearly positive. While McKinsey made a long termcommitment to this submarket, Obama for America and Groupon's short term leases will expire next year.

• Risks to the outlook include: shrinking space requirement per employee, reduced storage needs due to digital archiving, reducedserver space needs due to cloud computing, increased use of telecommunication, increased corporate tax rates in Illinois, andthe GSA's elimination of underutilized space. Underutilized space remains the biggest concern to the outlook of the market.Among tenants tracked with near-term lease expirations, many will be downsizing from their current footprint. This will lead toprolonged weakness in the market according to the baseline forecast.

• The CBD remains increasingly attractive for suburban tenants evaluating relocation alternatives. The Chicago MSA contains manyof the country's fastest-growing companies.

Lingering effects of the recession are expected to cause the direct vacancy rate to rise to 16.4 percent by 2012.

CE

NTR

AL B

US

INE

SS

DIS

TRIC

T


SU

PP

LYNEW DEVELOPMENTSTenants are considering new buildings, but costs may be prohibitive

• The development landscape remains unchanged sincelast quarter. Four proposed developments are activelymarketing to tenants in the CBD, while numerous othersites have been identified.

• As a deterrent to new development, material costs haveincreased 4.2 percent over the last year, outpacinginflation. If costs continue to rise, the required rents fornew buildings may rise. On the other hand, severalstates have been successful in reigning in union power.Similar measures in Illinois could work to reduce laborcosts and encourage development.

• Two of the proposed buildings are relatively small andwould need only one large anchor to obtain constructionfinancing. The Alter Group and White Oak Realty areproposing a 490,000 square foot tower at 625 WestAdams, while Fifield and CB Richard Ellis are proposinga 350,000 to 425,000 square foot building at 601 WestMonroe. Conversely, Trammell Crow and Insite RealEstate are marketing a 1 million square foot tower at301 South Wacker. Hines is trying to revive a 1 millionsquare foot development at 444 West Lake, which wassufficiently pre-leased, but fell apart.

• OUTLOOK: The estimated net rent needed to justify anew building is 75 to 100 percent greater than theaverage of Class A initial rents. Tenants will need to havea strong preference for a new building when significantdiscounts to peak pricing can be found in existing space.

NEW DEVELOPMENT HALTED; DEMAND PICKS UP SLIGHTLY

2000 - 2010 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%

Total - 20 Properties 16,446,894 sf

UNDER CONSTRUCTION % Leased

N/A

Total 0 sf

2000-2011 INVENTORY ADDITIONS

Delivered (2000-2010) 16,446,894 sfDelivered (2011) 0 sf

Total 16,446,894 sfUnder Construction 0 sfProposed Inventory 3,015,000 sf

Total 3,015,000 sf

CE

NTR

AL B

US

INE

SS

DIS

TRIC

T


SU

PP

LYSUBLEASE SPACEThe 2nd quarter was active, but resulted in little net change

• Total sublease space remained virtually unchanged in the quarter, while several spaces shifted among large blocks.

• Kirkland and Ellis stopped listing its space at 200 East Randolph (AON Center) for sublease because it is due to expire at the end of theyear. Part of DLA Piper’s sublease offering at 203 North LaSalle was leased, removing that large block from availability.

• A new large block of sublease availability was created at 350 West Mart Center (former Apparel Center) when AT&T added additionalspace to make a contiguous 161,000 square foot block. This marks the second large sublease availability for AT&T in the CBD; thecompany is also marketing space for sublease in Suburban Chicago.

• OUTLOOK: Sublease space availability is expected to gradually decrease as tenants sign discounted subleases and direct leases expire.More than 1 million square feet of sublease space must still be burned off before equilibrium levels are reached.

YEAR-END HISTORIC SUBLEASE AVAILABILITY: STEADILY DECREASING

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

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

200 E Randolph St 95,103 Vacant December 2013 14-16 AON Corporation875 N Michigan Ave 68,372 Vacant June 2014 28-30 PricewaterhouseCoopers233 S Wacker Dr 50,586 Negotiable August 2014 14 SNR Denton

TTotal - 3 Spaces 214,061

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

225 W Randolph St 238,778 February 2012 December 2022 22-30 AT&T350 W Mart Ctr 160,568 Vacant January 2016 3-5 AT&T231 S LaSalle St 126,439 November 2011 June 2023 6-9 Bank of America600 W Chicago Ave 117,101 Vacant November 2015 2 Level 3 Communications680 N Lake Shore Dr 95,523 Negotiable August 2022 15-16 Playboy Enterprises222 N LaSalle St 78,974 January 2012 May 2014 17-18 Merrill Lynch2 N LaSalle St 78,660 Vacant July 2016 Mezz-3 Computershare205 N Michigan Ave 55,312 Vacant July 2013 29-31 Unilever

Total - 8 Spaces 951,355

Italicized addresses indicate space is new on the market

CE

NTR

AL B

US

INE

SS

DIS

TRIC

T


SU

PP

LYLARGE BLOCKS OF DIRECT AVAILABILITYSeveral large tenants finally sign leases; blocks over 200,000 square feet are scarce

• The CBD experienced strong activity in large block leasing. Thetotal number of large blocks fell by five this quarter, while theircombined square footage decreased by 950,000 square feet.

• Wells Fargo’s lease at the CME building at 10 and 30 SouthWacker removed three separate large blocks from availability.Similarly, Golan Harris/Weber Shandwick’s lease at 875 NorthMichigan (John Hancock Center) removed two. McKinsey signeda lease at 300 East Randolph (Blue Cross Blue Shield Building)removing another large block of direct availability.

• The largest addition to available space is a 151,000 square footblock 21 South Clark. McKinsey, who currently occupies thespace, is expected to vacate next year.

• MB Real Estate has identified 36 tenants actively seeking at least50,000 square feet in the CBD. Considering that there are 72blocks available, there is a clear glut of space in the market. Whenconsidering blocks of 200,000 square feet or more, there areonly five spaces compared to seven tenants of such size. Whilethese tenants also have the possibility to renew, this segment ofthe market is the most constrained.

CLASS BBuilding Address Size (sf) Submarket

330 N Wabash Ave 371,945 North Michigan Avenue

303 E Wacker Dr * 241,206 East Loop

130 E Randolph St * 185,042 East Loop

55 E Monroe St 175,263 East Loop

333 S Wabash Ave * 163,800 East Loop


205 | 225 N Michigan Ave 120,446 East Loop

101 N Wacker Dr 106,732 West Loop

330 N Wabash Ave 97,932 North Michigan Avenue

1 N Dearborn St 97,261 Central Loop

231 S LaSalle St 91,962 Central Loop

200 N LaSalle St 71,728 Central Loop

600 W Van Buren St 71,254 West Loop

120 S LaSalle St * 69,519 Central Loop

175 W Jackson Blvd * 68,539 Central Loop

175 W Jackson Blvd * 67,725 Central Loop


525 W Monroe St 67,282 West Loop



55 W Monroe St 55,063 Central Loop


300 S Riverside Plz 52,727 West Loop

300 S Riverside Plz 52,456 West Loop

401 N Michigan Ave 51,870 North Michigan Avenue

222 Merchandise Mart Plz 50,000 River North

26 Blocks 2,713,964

CLASS ABuilding Address Size (sf) Submarket


233 S Wacker Dr 299,514 West Loop


21 S Clark * 151,000 Central Loop

111 W Illinois St 141,503 River North

161 N Clark St 116,964 Central Loop


500 W Monroe St * 106,475 West Loop

500 W Madison St 92,924 West Loop


455 N Cityfront Plaza Dr 90,207 North Michigan Avenue

333 W Wacker Dr * 87,954 West Loop



333 W Wacker Dr 80,736 West Loop

227 W Monroe St * 75,850 West Loop


One/Two Prudential Plaza 73,644 East Loop



200 E Randolph St 68,154 East Loop

77 W Wacker Dr 67,342 Central Loop


353 N Clark St 62,390 River North

980 N Michigan Ave 62,384 North Michigan Avenue



222 W Adams St 59,436 West Loop

181 W Madison St 56,199 Central Loop


155 N Wacker Dr 55,298 West Loop


525 W Van Buren St * 51,538 West Loop

33 Blocks 3,297,906

CLASS CBuilding Address Size (sf) Submarket


350 W Mart Ctr 126,535 River North

33 S State St 117,207 East Loop

401 S State St 110,898 East Loop

111 W Jackson Blvd 102,943 Central Loop

111 W Jackson Blvd 83,612 Central Loop


564 W Randolph St 81,331 West Loop

619 S LaSalle St 78,000 South Loop

360 N Michigan Ave * 76,855 East Loop

740 N Rush St 73,294 North Michigan Avenue

111 N Canal St 57,800 West Loop

12 Blocks 1,147,218

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

CE

NTR

AL B

US

INE

SS

DIS

TRIC

T


VACANCY RATESVacancy improves, but outlook is still weak

• The direct vacancy rate decreased during the quarter to 15.9 percent as a result of positive absorption in the CBD. The total vacancyrate (which includes sublease space) also decreased.

• Obama for America signed a short-term lease in the East Loop at One Prudential Plaza. While this absorption is positive right now, thespace will be vacated at the end of 2012. Combined with Groupon's short-term space at 303 East Wacker, the possibility of high futurevacancy looms.

• OUTLOOK: MB Real Estate expects direct vacancy to be volatile through the intermediate term, bumping between slightly positive andnegative changes with the peak still to come.

HISTORIC YEAR-END VACANCY MARKET STATISTICS BY BUILDING CLASS: CLASS A & B IMPROVES

HISTORIC YEAR-END DIRECT VACANCY: DOWN SLIGHTLY FROM YEAR-END 2011 DE

MA

ND

CE

NTR

AL B

US

INE

SS

DIS

TRIC

T


DE

MA

ND

LARGE DEALSVelocity remains elevated with numerous expansions

• The largest transaction of the quarter involves Wells Fargo, which leased 293,000 square feet at 10 and 30 South Wacker. Operationsare being consolidated from multiple locations throughout the CBD, and most of the space will not be occupied until 2013, providingno immediate boost to the market.

• Groupon remains in the headlines, subleasing a large block of space at 600 West Chicago from Bankers Life and Casualty Company toexpand its presence at its headquarters. In turn, Bankers Life is moving to the East Loop in 2012, backfilling Blue Cross Blue Shield spaceat 111 East Wacker. Between Obama for America, Bankers Life, and McKinsey’s upcoming relocation to 300 East Randolph, the EastLoop was the most active submarket this quarter. However, only the first transaction results in positive absorption today.

• Unlike recent quarters, the CBD failed to attract tenants from Suburban Chicago or other markets this quarter. The largest deals representshifts around the CBD with companies, such as Wells Fargo, consolidating locations. PrivateBank's expansion at 120 South LaSallerepresents the largest net addition to occupancy this quarter as they also removed space at 70 West Madison from the sublease market.

• Companies, such as United Airlines, have earned major incentives from tax increment financing (TIF) to relocate to the CBD. New ChicagoMayor Rahm Emanuel has pledged to review TIF incentives, which could bode poorly for future transactions. On the other hand, companieslike GE Capital and Allscripts have already pledged to bring jobs to the CBD without incentives.

• OUTLOOK: Several of the largest tenants tracked, including Wells Fargo and McKinsey, made leasing decisions this quarter, and few largetenants have entered the market. While some are still in the pipeline, a flurry of activity is not expected.

NEW

Tenant Type Submarket Building Address Size (sf)

Wells Fargo & Co. New West Loop 10 & 30 S Wacker 293,000Bankers Life and Casualty Company New East Loop 111 E Wacker 134,724Marsh Relo West Loop 540 W Madison 120,000McKinsey & Co. New East Loop 300 E Randolph 100,000GE Railcar New Central Loop 161 N Clark 64,000Legal Assistance Foundation Relo Central Loop 120 S LaSalle 55,756Obama for America New East Loop 130 E Randolph 50,000Chicago Community Trust Relo East Loop 225 N Michigan 23,700Ifbyphone New West Loop 300 W Adams 20,986Total - 9 Spaces 862,166

RENEWAL/EXPANSION/SUBLEASE


Groupon Sub River North 600 W Chicago 220,000Accenture Ren/Cont Central Loop 161 N Clark 160,000Bryan Cave Ren/Cont Central Loop 161 N Clark 62,000Private Bank Exp Central Loop 120 S LaSalle 57,200Hostway Corporation Ren West Loop 100 N Riverside 52,660Strata Marketing Ren/Exp Central Loop 30 W Monroe 25,153Sanchez, Daniels, & Hoffman Ren West Loop 333 W Wacker 25,000Stout Risius Ross Ren West Loop 1 S Wacker 24,760Chicago Board of Options Exchange Ren Central Loop 111 W Jackson 23,828Guerrero Howe Sub East Loop 205 N Michigan 22,125National Able Network Sub West Loop 567 W Lake 21,770Total - 11 Spaces 694,496

LARGE LEASE TRANSACTIONS

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

CE

NTR

AL B

US

INE

SS

DIS

TRIC

T


DE

MA

ND

ABSORPTIONWest Loop, East Loop and River North all post positive absorption

• Absorption in the second quarter was 280,000 square and was positive for the second time since the downturn. The West Loop andRiver North continued to see occupancy rise with the East Loop experiencing positive absorption for the first time in several quarters.All segments of the Central Loop lost occupancy, although the Class A segment had been positive in previous quarters.

• Demand continues to increase in Class A and B properties. Class B experienced the strongest positive absorption this quarter as theflight-to-quality has started to filter down and help improve that segment of the market.

• One significant risk to the sector involves the federal government’s office space plans. The Obama administration has ordered the GSAto reduce its portfolio to eliminate underutilized space. More than 14,000 buildings have been identified for elimination nationwide.With a large presence in the CBD, which acts as the Midwest hub for federal government offices, the impact could be detrimental.

• OUTLOOK: Increasingly efficient floor plans, telecommuting, and reduced storage and server space are all long-term negatives thatweigh on occupancy in the office market. Although jobs will eventually return, other obstacles await the office market.

HISTORIC ABSORPTION: POSITIVE YEAR-TO-DATE, BUT WILL IT CONTINUE?

HISTORIC ABSORPTION BY SUBMARKET: EAST LOOP, WEST LOOP, AND RIVER NORTH POSITIVE

CE

NTR

AL B

US

INE

SS

DIS

TRIC

T


FEATU

RE

SLEASE COMPARABLESSharp drop in Class B rates likely spurred absorption

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

3Q2010 - 2Q2011 $20.30 $13.89 $11.61 $47.07 $22.97 $20.29 8.4 6.7 6.9 8.5 6.8 5.8

3Q2009 - 2Q2010 $19.57 $15.31 $11.74 $38.42 $28.25 $18.90 8.3 6.8 5.3 7.9 6.6 5.8

3Q2008 - 2Q2009 $21.76 $16.45 $13.38 $42.61 $35.15 $33.84 6.0 4.4 4.4 8.6 7.0 7.9

3Q2007 - 2Q2008 $20.66 $16.71 $14.40 $42.65 $36.95 $25.37 4.7 3.7 3.7 7.9 6.6 6.9

3Q2006 - 2Q2007 $18.63 $14.22 $14.10 $50.16 $41.59 $17.83 5.8 5.6 2.8 8.7 7.3 5.1

3Q2005 - 2Q2006 $17.85 $13.18 $12.72 $46.60 $36.29 $20.77 6.7 5.0 2.5 8.4 7.1 5.8

3Q2004 - 2Q2005 $16.86 $12.81 $9.68 $42.68 $44.19 $25.75 7.1 7.3 4.4 10.0 8.8 6.4

3Q2003 - 2Q2004 $17.16 $12.45 $8.88 $42.32 $37.40 $17.71 5.2 5.8 3.9 8.9 8.3 6.7

3Q2002 - 2Q2003 $20.75 $15.12 $11.92 $36.88 $36.22 $22.46 1.3 4.3 1.7 8.0 9.2 6.0

3Q2001 - 2Q2002 $22.92 $16.19 $15.16 $26.31 $26.50 $28.49 1.1 0.7 1.4 7.0 8.4 7.6

3Q2000 - 2Q2001 $21.94 $16.04 $15.37 $28.21 $24.79 $29.10 0.8 0.1 0.0 7.6 7.2 5.8

3Q1999 - 2Q2000 $20.77 $15.82 $12.66 $25.76 $26.78 $22.75 0.1 0.0 0.1 8.3 7.3 6.7

3Q1998 - 2Q1999 $19.21 $14.09 $15.73 $20.38 $27.21 $26.73 0.2 0.4 0.0 7.3 7.2 8.2

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

3Q2010 - 2Q2011 $19.67 $14.30 $10.79 $21.10 $9.45 $11.12 5.2 3.9 5.1 6.5 4.4 5.5

3Q2009 - 2Q2010 $18.46 $15.59 $11.01 $13.92 $9.59 $5.49 5.1 3.6 4.1 5.4 4.7 4.8

3Q2008 - 2Q2009 $20.23 $17.15 $15.33 $19.21 $16.69 $15.69 3.0 3.6 2.8 5.9 5.6 7.0

3Q2007 - 2Q2008 $22.72 $15.73 $14.77 $22.75 $15.42 $16.69 3.9 2.1 2.3 7.2 5.4 6.7

3Q2006 - 2Q2007 $16.26 $14.02 $15.42 $16.19 $16.94 $9.22 4.2 2.5 1.7 6.2 6.5 5.4

3Q2005 - 2Q2006 $16.64 $13.33 $15.76 $25.84 $16.58 $8.99 4.8 3.3 0.4 7.8 6.5 5.2

3Q2004 - 2Q2005 $15.97 $12.47 $11.57 $21.54 $22.76 $5.31 3.6 3.1 1.0 7.5 7.9 4.7

3Q2003 - 2Q2004 $18.28 $13.43 $9.71 $23.96 $17.21 $10.78 2.5 3.7 1.1 8.9 6.9 6.7

3Q2002 - 2Q2003 $20.76 $14.26 $10.68 $14.49 $13.31 $7.78 0.7 1.8 0.0 6.8 7.1 6.6

3Q2001 - 2Q2002 $22.68 $16.32 $13.10 $16.94 $13.68 $7.38 0.7 0.7 0.1 7.1 6.6 4.6

3Q2000 - 2Q2001 $22.58 $16.47 $14.11 $8.42 $8.94 $4.75 0.0 0.0 0.0 4.6 7.3 3.3

3Q1999 - 2Q2000 $20.72 $15.03 $13.77 $13.81 $14.19 $10.38 0.1 0.0 0.0 6.1 6.9 6.6

3Q1998 - 2Q1999 $21.21 $12.05 $13.46 $11.47 $12.79 $7.59 0.0 0.0 0.2 6.8 5.3 4.0

AVERAGE INITIAL RATE

AVERAGE INITIAL RATEAVERAGE 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.

• Class A initial net rental rates for both new and renewal transactions have increased 3.7 and 6.6 percent respectively in the trailing four-quarter period compared to the previous year. While these indicate a strengthening, it is also coupled with an increase in average tenantimprovement allowance and a slight increase in abatement package duration. Class A rents are the most responsive to market changes,spiking during a healthy market, but falling rapidly during recession.

• The sharp drop in Class B average initial net rental rates of 9.2 percent occurred as concessions were reduced in this segment of themarket. The decrease in rental rates likely compelled leasing activity in this segment of the market, which experienced positive absorptionfor the first time in several years as fundamentals finally reached equilibrium. The Class C market continued to deteriorate, with initialrates declining and concession packages rising. The Class C market suffers as tenants trade up in other segments due to falling rents.

• The average lease length has increased this period, signaling that tenants are willing to make longer-term commitments.

• OUTLOOK: Class A rental rates will continue to increase, but will still be offset by concessions to attract tenants. The uptick in absorptionin the Class B segment may signal a turning point and allow its rental rates to increase in future quarters.

AVERAGE LEASE TERMS ON NEW AND RENEWAL DEALS

All rates are shown as net and do not include tax and operating costs for building. Numbers will be revised as new data are reported in subsequent quarters

CE

NTR

AL B

US

INE

SS

DIS

TRIC

T


FEATU

RE

SINVESTMENT SALESSales offerings surge

• Investment sales offerings are especially active, though few sales closed during the quarter. The current listings are fairly reactionarydue to successful recent sales. Massachusetts-based CommonWealth REIT bought 233 North Michigan this quarter and has 600 WestChicago under contract. Although CommonWealth REIT owns properties in the Chicago suburbs, these purchases mark its entrance tothe CBD.

• Nationally, debt financing is more readily available. The CMBS market has returned. Nonetheless, the delinquency rate for Chicagoland'scommercial real estate is now 7.7 percent after a short-term improvement. National office prices are down 48.9 percent from peakaccording to Moody's Commercial Property Price Index. Together, these factors do not bode well for price appreciation.

• OUTLOOK: Sellers that tested the market at the end of 2010 successfully sold for capitalization rates that neared the peak of the market.With 15 office buildings currently on the market, momentum is likely to be strong.

INVESTMENT SALES: INFLUX OF PROPERTIES ON THE MARKET

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

233 S Wacker New On Market 3,781,045 $1,500,000,000 $397 A Joseph Chetrit, Israel Gluck & Joseph Moinian

Marketing (Eastdil Secured & Newmark Knight Frank)

1 N Wacker New On Market 1,400,000 $580,000,000 $414 A Hines (1-50% Stake) Marketing (Eastdil Secured)

141 W Jackson New On Market 1,400,000 B CME Group Marketing (Jones Lang LaSalle & Holly Duran Real Estate Partners)

311 S Wacker New On Market 1,281,000 $390,000,000 $304 A Mark Karasick Marketing (CB Richard Ellis)

55 W Monroe New On Market 803,046 $150,000,000 $187 A LaSalle Inv. Mgmt Marketing (Jones Lang LaSalle)

541 N Fairbanks New On Market 541,600 A Golub & Co. Marketing (Eastdil Secured)

22 W Washington New On Market 440,000 $210,000,000 $477 B Golub & Co. Marketing (Holliday Fenoglio Fowler)

35 W Wacker Under Contract 1,118,042 $400,000,000 $358 A Piedmont UBS Realty

233 N Michigan 2nd Qtr 2011 980,362 $162,200,000 $165 B Parkway Properties CommonWealth REIT

200 S Wacker 2nd Qtr 2011 754,751 $117,777,777 $156 A Behringer Harvard Equity Group Inv & Transwestern

29 E Madison11 E Adams8 S Michigan

2nd Qtr 2011 571,527 $18,500,000 $65 C Winthrop Realty Trust Marc Realty

68 E Wacker 2nd Qtr 2011 78,775 $9,700,000 $123 C Sam Roti Aries Capital LLC

70 W Madison On Market 1,439,369 $340,000,000 $236 A Hines Marketing (Eastdil Secured)

444 N Michigan On Market 516,797 $100,000,000 $193 B GLL Properties Marketing (Holliday Fenoglio Fowler)

200 W Jackson On Market 476,711 B Apollo Investment Marketing (Holliday Fenoglio Fowler)

32 W Randolph On Market 226,666 $19,500,000 $86 C David & Barbara Kalish Marketing (CB Richard Ellis)

215 W Ohio On Market 52,742 - - C Bold Development Marketing

600 W Chicago 1,567,592 $390,000,000 $249 B CommonWealth REIT

111 W Jackson 1st Qtr 2011 528,104 $35,000,000 $66 C P&S Limited Partnership JV - David Werner & Berkley

71 S Wacker 4th Qtr 2010 1,490,825 $625,000,000 $419 A Pritzker Realty Group Irvine Cos.

$ $

Under Contract David Werner, Jacob & Victor Gerstein

353 N Clark 4th Qtr 2010 1,173,643 $385,000,000 $328 A Mesirow Financial Tishman-Speyer Properties L.P.

300 S Riverside 4th Qtr 2010 1,075,907 $189,000,000 $176 A Brookfield Prop. David Werner and Joseph Mizrachi

225 W Washington 4th Qtr 2010 483,497 $60,000,000 $124 A Avestus Capital KTC Properties

65 E Wacker 4th Qtr 2010 220,000 $14,900,000 $68 C The Griffith Group The Private Bank

79 W Monroe 4th Qtr 2010 199,824 ~$10,000,000 ~$50 C Bank of America Farbman Corp.

820 S Michigan 4th Qtr 2010 127,153 $8,000,000 $63 C Johnson Publishing Columbia College

238 S Wabash 4th Qtr 2010 90,312 - - C Cook County Sheriff LaSalle 115 Holdings

300 N LaSalle 3rd Qtr 2010 1,300,000 $655,000,000 $503 A Hines Interests KBS Realty Advisors

Price per sf (square foot) - based off estimated selling price for new to market buildings

CE

NTR

AL B

US

INE

SS

DIS

TRIC

T


FEATU

RE

SFORECASTRecovery will take many years; sector faces extreme headwinds

Tenants are expanding before employment data warrantsit, muddling the forecast. Tenants such as Groupon andPrivate Bank are growing rapidly. Suburban tenants suchas Sara Lee are seeking space in the CBD. These largetenant decisions have helped the market gain traction.

With the quarter’s positive absorption, occupancy iscurrently 1.0 percent off its 2007 peak. This compares toa 6.3 percent employment loss. During past recessions,there was a strong correlation between the two metrics,which leads to a forecast of future occupancy declines.

While population growth and a gradual shift of theeconomy from goods-producing industries to service-producing industries should propel growth in occupancy,there are numerous headwinds working against the officemarket. Companies are able to create more efficientfloorplans. Archives are going digital; server rooms arebeing replaced by cloud technology. New healthcarelegislation will encourage more contracting instead ofhiring; contractors will not need designated space. Thefederal government must lighten its debt burden, and14,000 of its buildings have been marked as underutilizedand could be sold, flooding the market.

It is becoming increasingly likely that the office spacerecovery will be drawn out, with slight swings of positiveand negative absorption for several years. On a net basis,occupancy must still decline to match jobs.

HISTORIC & PROJECTED VACANCY: OCCUPANCY WILL CONTINUE TO FALL

YearTotal Historic and

Forecasted Inventory (sf)

Total Historic & Forecasted

Occupancy (sf)

Direct Vacancy %

1996 120,244,884 101,285,488 15.8%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 130,583,749 109,278,524 16.3%2012 130,583,749 109,035,250 16.5%

605,567

255,950

1996-2010 Absorption Avg:

YTD 2011 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.

CE

NTR

AL B

US

INE

SS

DIS

TRIC

T


FEATU

RE

SSUBMARKET MAP

CE

NTR

AL B

US

INE

SS

DIS

TRIC

T


FEATU

RE

SMARKET STATISTICS

CENTRAL LOOPRBA(sf)

YTDAbsorption (sf)

2nd QuarterAbsorption (sf)

Direct Vacancy(sf)

Direct Vacancy

%

Occupancy(sf)

Sublease Vacancy

(sf)

Total Vacancy Rate (Direct + Sublease) %

Class A 13,553,757 68,421 (32,289) 1,334,004 9.8% 12,219,753 308,476 12.1%

Class B 14,000,312 (91,587) (48,286) 2,503,380 17.9% 11,496,932 474,237 21.3%

Class C 8,619,499 (213,183) (93,197) 1,414,643 16.4% 7,204,856 144,348 18.1%

Total 36,173,568 (236,349) (173,772) 5,252,027 14.5% 30,921,541 927,061 17.1%

EAST LOOPRBA(sf)

YTDAbsorption (sf)


Direct Vacancy(sf)

Direct Vacancy

%

Occupancy(sf)

Sublease Vacancy

(sf)


Class A 4,001,516 (71,578) 54,897 1,087,471 27.2% 2,914,044 187,252 31.9%

Class B 10,193,867 212,175 163,427 2,231,622 21.9% 7,962,245 253,737 24.4%

Class C 8,484,560 (52,983) (20,034) 1,173,849 13.8% 7,310,711 26,790 14.2%

Total 22,679,942 87,614 198,290 4,492,942 19.8% 18,187,000 467,779 21.9%

N. MICHIGAN AVE.RBA(sf)

YTDAbsorption (sf)


Direct Vacancy(sf)

Direct Vacancy

%

Occupancy(sf)

Sublease Vacancy

(sf)


Class A 3,952,669 (49,933) (21,064) 796,367 20.1% 3,156,302 133,092 23.5%

Class B 4,622,071 (43,610) (37,240) 1,109,234 24.0% 3,512,837 143,922 27.1%

Class C 4,448,708 (32,882) (19,176) 588,549 13.2% 3,860,159 47,766 14.3%

Total 13,023,448 (126,424) (77,480) 2,494,150 19.2% 10,529,298 324,780 21.6%

RIVER NORTHRBA(sf)

YTDAbsorption (sf)


Direct Vacancy(sf)

Direct Vacancy

%

Occupancy(sf)

Sublease Vacancy

(sf)


Class A 4,011,664 (9,633) 37,212 631,089 15.7% 3,380,575 108,858 18.4%

Class B 3,545,977 142,067 74,842 265,070 7.5% 3,280,908 340,597 17.1%

Class C 5,772,321 13,260 18,942 749,718 13.0% 5,022,603 263,723 17.6%

Total 13,329,962 145,694 130,996 1,645,877 12.3% 11,684,086 713,178 17.7%

SOUTH LOOPRBA(sf)

YTDAbsorption (sf)


Direct Vacancy(sf)

Direct Vacancy

%

Occupancy(sf)

Sublease Vacancy

(sf)


Class A 1,019,325 (45,466) (6,812) 141,502 13.9% 877,823 12,809 15.1%

Class C 1,291,743 (19,461) (4,085) 322,222 24.9% 969,520 2,005 25.1%

Total 2,311,068 (64,927) (10,897) 463,724 20.1% 1,847,343 14,814 20.7%

WEST LOOPRBA(sf)

YTDAbsorption (sf)


Direct Vacancy(sf)

Direct Vacancy

%

Occupancy(sf)

Sublease Vacancy

(sf)


Class A 26,843,953 314,155 162,621 4,007,759 14.9% 22,836,194 748,551 17.7%

Class B 9,720,250 86,757 45,578 1,243,709 12.8% 8,476,541 214,992 15.0%

Class C 6,501,558 49,431 4,887 1,124,720 17.3% 5,376,838 44,969 18.0%

Total 43,065,761 450,343 213,086 6,376,188 14.8% 36,689,573 1,008,512 17.1%

TOTALSRBA(sf)

YTDAbsorption (sf)


Direct Vacancy(sf)

Direct Vacancy

%

Occupancy(sf)

Sublease Vacancy

(sf)


Class A 53,382,883 205,965 194,564 7,998,192 15.0% 45,384,691 1,499,038 17.8%

Class B 42,082,477 305,803 198,321 7,353,015 17.5% 34,729,462 1,427,485 20.9%

Class C 35,118,389 (255,818) (112,663) 5,373,701 15.3% 29,744,688 529,601 16.8%

Total CBD 130,583,749 255,950 280,223 20,724,907 15.9% 109,858,841 3,456,124 18.5%

SU

BU

RB

AN

CH

ICA

GO


SECTION THREE

SUBURBAN CHICAGOEXECUTIVE SUMMARY

Widespread negative absorption continued in the second quarter in Suburban Chicago. In contrast to the CBD, much of the losses inoccupancy have already filtered through the market, but further negativity is likely, especially as tenants such as United Airlines leave in favorof the CBD.

Key Indicators: • The direct vacancy rate increased in all classes and submarkets except the East-West submarket. The Class B market is now performingworse than the Class C market, evidence of the glut of space and that the flight-to-quality trend is not as prevalent in Suburban Chicago.

• Overall sublease availability decreased during the quarter, although a large block listed by AT&T will impact the market. Several largeblocks of sublease availability are due to expire by the end of the year but will likely switch to direct availability.

• Leasing activity decreased from last quarter with little activity for new, large transactions.

• Asking rents have improved in the Class A segment of the market, although demand fundamentals do not warrant an improvement asit is still losing occupancy. Asking rents continue to fall for Class B and C space.

• The potential for formerly single-tenant corporate campuses to enter the multi-tenant market weighs on Suburban Chicago. With UnitedAirlines leaving for the CBD, Sara Lee exploring a similar move, AT&T and Motorola shedding space, and Sears looking to relocate out ofstate, the potential for numerous vacant corporate campuses is high.

• Unlike the CBD, there are no potential office developments making headlines. The only project underway is the build-to-suit headquartersfor Astellas Pharma US in Glenview, which has created a large block of sublease availability at its former location in Deerfield.

Occupancy has decreased 6.9 percent in Suburban Chicago compared to a 7.5 percent peak-to-trough total employment loss. Corporatedefections as well as underutilized space remain the biggest risks to the market because companies have leased more space than they needand will reduce square footage upon lease expiration.

SUBURBAN VACANCY AND YEAR-TO-DATE ABSORPTION SUMMARY

Direct Vacancy2Q2011

AChange from

1Q2011B

Change from 1Q2011

CChange from

1Q2011Total

Change from 1Q2011

East-West 20.8% -0.4% 23.8% 0.3% 23.0% -0.8% 22.2% -0.1%North 19.2% 0.1% 22.1% 1.1% 21.7% 1.8% 20.2% 0.5%Northwest 21.0% 0.4% 34.4% 1.4% 30.0% 0.1% 26.0% 0.7%O'Hare 20.4% 0.0% 32.4% 0.6% 36.4% 0.3% 26.7% 0.2%Suburban Chicago Total 20.4% 0.0% 27.3% 0.7% 26.8% 0.2% 23.3% 0.7%

Net Absorption2Q2011

A B C Total

East-West 62,935 (39,451) 38,155 61,639

North (22,626) (31,795) (56,319) ((110,741)

Northwest (78,689) (157,573) 4,223 ((232,039)

O'Hare 5,571 (26,627) (11,128) ((32,184)

Suburban Chicago Total (32,810) (255,446) (25,069) (313,325)

SU

BU

RB

AN

CH

ICA

GO


SU

PP

LYNEW DEVELOPMENTSLackluster demand does not warrant development

• With vacancy rising in Suburban Chicago, a multitude of options exists for tenants looking to expand or relocate. There is no demandfor new construction, as existing landlords aggressively compete for tenants. The Producer Price Index was up 7.5 percent year-over-year in May due to the increase in diesel fuel, copper, and steel prices. Rising construction prices will require higher rents to justify newconstruction, further weighing against the likelihood of development.

• Companies that demand new, premier space are the only exception, and may build new space to suit their needs. Besides severalnoncompetitive medical office developments, the only office construction underway is the North American headquarters for AstellasPharma US in Glenview. The development is a build-to-suit project with MB Real Estate managing the construction.

• The Bridge Development spec construction at 555 Aptakisic Road in Lincolnshire is finally under contract to a tenant that intends to leasethe entire 160,000 square foot building. Details of the lease are forthcoming, but move-in is expected in December. The two-year lagbetween delivery and move-in will be a strong deterrent for developers.

• OUTLOOK: Suburban Chicago is not supply constrained. Numerous parcels are ready for development once demand warrants it, whichwill always keep rent growth to inflationary levels. Between shrinking occupancy and constrained financing, speculative development isunlikely for several years.

2010 DeliveriesBuilding Address Size (sf) % Leased Submarket Comments

1901 Chestnut Ave, Glenview 110,000 100.0% North Delivered September 2010. Build-to-suit Headquarters for General Board of Pension & Health Benefits of The United

Methodist Church. Construction managed by MB Real Estate.

9501 Technology Blvd, Rosemont 119,000 74.8% O'Hare Delivered April 2010. Rosemont Corporate Center. Tenants: Cisco, Skyline Advanced Tech. Developed by

Ryan Companies.

111 Shuman Blvd, Naperville 85,000 100.0% East-West Delivered March 2010. Tenants: Delta Dental, Ryan Companies. Developed by Ryan Companies.

TTotal - 3 Propperties 314,,000

2011 DeliveriesBuilding Address Size (sf) % Leased Submarket Comments

Total - 0 Propperties

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

1 Astellas Pky, Glenview 440,000 100.0% Fall 2012 Broke ground April 2010. Build-to-suit North American Headquarters for Astellas Pharma US. Construction

managed by MB Real Estate.

Total - 1 Proppertyy 440,,000

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

Total - 0 Properties

NEW DEVELOPMENT PIPELINE

SU

BU

RB

AN

CH

ICA

GO


SU

PP

LYSUBLEASE SPACETotal sublease availability substantially reduced; more to come

• As in the CBD, the total square footage of sublease availability continued its decline in Suburban Chicago. Three large sublease blocksare scheduled to roll to directly available space in the third quarter, further reducing the inventory.

• AT&T is listing its more than 1.2 million square foot campus in Hoffman Estates. It has been single-tenant and therefore not competitivebut is a prime example of how the single-tenant market can impact the multi-tenant one in times of distress. Astellas Pharma US listedits space in Deerfield for sublease in preparation of moving into its new build-to-suit headquarters in Glenview next year.

• OUTLOOK: When the market is at equilibrium, roughly 3 million square feet of sublease space is available, meaning there is room forreduction. As leases expire and switch to direct availability, sublease availability will decrease.

HISTORIC YEAR-END SUBLEASE AVAILABILITY: BELOW PREVIOUS RECESSION HIGHS

Class ABuilding Address Size (sf) Occupancy Expiration Submarket Sublandlord

2000 W AT&T Dr, Hoffman Estates 1,207,245 Vacant August 2016 Northwest AT&T3 Overlook Pt, Lincolnshire 290,143 Vacant February 2017 North Hewitt Associates4201 Winfield Rd, Warrenville 249,996 January 2012 - East-West Navistar3 Parkway Blvd N, Deerfield 232,836 July 2012 December 2014 North Astellas Pharma US75 N Fairway Dr Vernon Hills 150 258 Vacant December 2011 North Washington Mutual75 N Fairway Dr, Vernon Hills 150,258 Vacant December 2011 North Washington Mutual1600 McConnor Pky, Schaumburg 86,919 Vacant August 2011 Northwest Ameriquest Mortgage Company1600 McConnor Pky, Schaumburg 80,760 Vacant August 2011 Northwest Ameriquest Mortgage Company1450 American Ln, Schaumburg 65,259 Negotiable October 2016 Northwest Zurich American Insurance Company1200 Lakeside Dr, Bannockburn 63,328 Vacant August 2011 North RR Donnelley410 Warrenville Rd, Lisle 60,434 Vacant May 2013 East-West IKON Office Solutions

TTotal - 10 Spaces 2,487,178

Class BBuilding Address Size (sf) Occupancy Expiration Submarket Sublandlord

6200 S Route 53, Lisle 360,000 Vacant July 2012 East-West Telcordia Technologies5450 N Cumberland Ave, Chicago 118,666 Negotiable February 2020 O'Hare Océ-USA Holding Inc750 N Commons Dr, Aurora 60,000 Negotiable September 2017 East-West Westell Technologies

Total - 3 Spaces 538,666

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

Italicized addresses indicate space is new on the market

SU

BU

RB

AN

CH

ICA

GO


SU

PP

LYLARGE BLOCKS OF DIRECT AVAILABILITYLarge space availabilities reduced but tenants still have wide range of choices

• The total number of large blocks and its square footage reducedduring the quarter. Despite this, there were some large blocksadded during the quarter. Ninety large blocks of direct space arenow available in Suburban Chicago.

• Part of the large block, 84,000 square feet at 1200 WarrenvilleRoad in the East-West submarket, was taken off the market asthe landlord performs base building renovation. In the Northwestsubmarket, Valtera Corporation renewed and expanded at 1701Golf Road to cut that large block by 20 percent.

• The largest addition to availability is in the East-West submarket,where almost 230,000 square feet is now available for October2012 occupancy at 3075 Highland Parkway. RR Donnelly, KeyBank, and Sodexho will be vacating space.

CLASS CBuilding Address City Size (sf) Submarket

3501 Algonquin Rd Rolling Meadows 206,770 Northwest1299 Algonquin Rd Schaumburg 195,393 Northwest2-4-6 Genesee St Waukegan 75,996 North1950 S Batavia Ave Geneva 51,845 East-West4 Blocks of Space 530,004

CLASS BBuilding Address City Size (sf) Submarket

1200 Warrenville Rd ** Naperville 245,514 East-West28100 Torch Pky Warrenville 203,842 East-West2400 Cabot Dr * Lisle 194,052 East-West3800 Golf Rd ** Rolling Meadows 156,574 Northwest544 Lakeview Pky Vernon Hills 144,999 North2350-2360 E Devon Ave Des Plaines 142,596 O'Hare4 Corporate Dr Long Grove 141,079 North1 Salem Lake Dr Long Grove 140,252 Northwest700 N Wood Dale Rd Wood Dale 125,328 Northwest2850 W Golf Rd Rolling Meadows 110,942 Northwest703-709 W Algonquin Rd Arlington Heights 96,213 Northwest4242 N Harlem Ave Norridge 93,155 O'Hare800 Jorie Blvd Oak Brook 88,886 East-West975 Meridian Lakes Dr Aurora 74,266 East-West1501 Feehanville Dr Mount Prospect 71,310 Northwest1245 Corporate Blvd Aurora 69,965 East-West814 Commerce Dr Oak Brook 66,882 East-West27545 Diehl Rd Warrenville 62,440 East-West9801 W Higgins Rd Rosemont 57,994 O'Hare1000 Lakeside Dr Bannockburn 56,745 North6400 Shafer Ct Rosemont 56,219 O'Hare1000 E Woodfield Rd Schaumburg 51,410 Northwest702-704 Deerpath Dr Vernon Hills 51,221 North2400 E Devon Ave Des Plaines 51,000 O'Hare24 Blocks of Space 2,552,884

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

CLASS ABuilding Address City Size (sf) Submarket

21440 Lake Cook Rd Deer Park 351,425 Northwest1600 McConnor Pky ** Schaumburg 300,686 Northwest1200 Lakeside Dr ** Bannockburn 257,190 North700 Oakmont Ln Westmont 256,767 East-West1701 Golf Rd Rolling Meadows 234,287 Northwest3075 Highland Pky * Downers Grove 228,764 East-West1 Corporate Dr Long Grove 201,509 North150 NW Point Blvd Elk Grove Village 176,844 Northwest1415 W Diehl Rd Naperville 168,000 East-West425 N Martingale Rd Schaumburg 155,559 Northwest1 Overlook Pt Lincolnshire 148,686 North3333 Beverly Rd Hoffman Estates 129,000 Northwest2895 Greenspoint Pky Hoffman Estates 127,941 Northwest9525 W Bryn Mawr Ave Rosemont 113,868 O'Hare1701 Golf Rd Rolling Meadows 112,414 Northwest1707 N Randall Rd Elgin 109,076 Northwest1707 N Randall Rd Elgin 109,076 Northwest9700 W Higgins Rd Rosemont 107,617 O'Hare2355 Waukegan Rd Bannockburn 106,495 North25 Tri State International * Lincolnshire 103,742 North1333 Butterfield Rd Downers Grove 102,096 East-West1011 Warrenville Rd Lisle 101,172 East-West8700 W Bryn Mawr Ave Chicago 97,801 O'Hare1 Pierce Pl Itasca 97,517 Northwest3333 Warrenville Rd Lisle 89,334 East-West8700 W Bryn Mawr Ave * Chicago 88,409 O'Hare3500 Lacey Rd * Downers Grove 88,199 East-West5550 Prairie Stone Pky Hoffman Estates 84,617 Northwest850-860 Technology Way Libertyville 78,000 North2655 Warrenville Rd Downers Grove 76,691 East-West333 Knightsbridge Pky Lincolnshire 74,728 North18W140 Butterfield Rd Oakbrook Terrace 74,259 East-West75 Tri State International * Lincolnshire 73,857 North540 Lake Cook Rd * Deerfield 72,580 North2100 Sanders Rd Northbrook 72,565 North9500 W Bryn Mawr Ave Rosemont 72,149 O'Hare1000 Royce Blvd Oakbrook Terrace 70,000 East-West535 E Diehl Rd Naperville 67,731 East-West300 Park Blvd Itasca 67,307 Northwest701 Warrenville Rd Lisle 67,233 East-West4201 Lake Cook Rd Northbrook 66,000 North1001 Warrenville Rd Lisle 65,441 East-West2 Corporate Dr Long Grove 64,370 North100 S Saunders Rd Lake Forest 62,481 North2001 Butterfield Rd Downers Grove 61,758 East-West2 Pierce Pl Itasca 60,904 Northwest300 Knightsbridge Pky Lincolnshire 59,606 North700 Commerce Dr Oak Brook 58,203 East-West1 Tower Ln Oakbrook Terrace 57,426 East-West9500 W Bryn Mawr Ave * Rosemont 56,554 O'Hare2333 Waukegan Rd Bannockburn 56,543 North9500 W Bryn Mawr Ave * Rosemont 56,471 O'Hare2100 Enterprise Ave Geneva 55,584 East-West1700 E Golf Rd Schaumburg 54,496 Northwest2550 W Golf Rd Rolling Meadows 54,148 Northwest7400 N Caldwell Ave Niles 54,000 North2701 Patriot Blvd Glenview 53,671 North3000 Lakeside Dr Bannockburn 53,316 North2800 W Higgins Rd Hoffman Estates 52,918 Northwest1007 Church St Evanston 52,045 North1650 Lake Cook Rd * Deerfield 52,000 North8725-8745 W Higgins Rd Chicago 50,214 O'Hare62 Blocks of Space 6,373,340

SU

BU

RB

AN

CH

ICA

GO


DE

MA

ND

VACANCY RATESVacancy rises; Companies look to move from Suburban Chicago

• The direct vacancy rate reached 23.3 percent, a 0.2 percent increase from last quarter. The total vacancy rate remains unchanged at26.2 percent as sublease availability reductions balance the result. Class A vacancy remains unchanged from the first quarter. At 20.4percent, its direct vacancy is the lowest among the classes, but still well above a level that could drive rent growth.

• Class B space experienced the largest surge in direct vacancy, which is now higher than the Class C direct vacancy rate. The North andNorthwest submarkets experienced the most deterioration in Class B occupancy fundamentals.

• Overall, the East-West submarket was the only one to improve with its direct vacancy rate dropping slightly to 22.2 percent. The Northsubmarket still has the lowest direct vacancy rate, but has recently lagged behind the rest of the market.

• OUTLOOK: Pervasive weakness continues in Suburban Chicago. Companies that built huge campuses on the outskirts of the city arereevaluating their real estate plans, including AT&T, Sears, Motorola, and Sara Lee.

HISTORIC YEAR-END VACANCY RATES BY SUBMARKET: NORTHWEST AND O’HARE LAG

HISTORIC YEAR-END VACANCY RATES BY CLASS: B AND C PROPERTIES MORE THAN 1/4 VACANT

SU

BU

RB

AN

CH

ICA

GO


DE

MA

ND

LARGE DEALSLarge transactions do not generate much new occupancy for the market

• Overall leasing activity among large transactions increased, driven by CVS Caremark's large renewals in the North and Northwestsubmarkets.

• Activity for new, large transactions was light with the largest being only 80,000 square feet. A majority of these transactions wererelocations within the submarket, which fail to generate new demand. Several of these represent contractions. The U.S. Military EntranceProcessing Command is cutting their space in O'Hare by more than one-third while RFIDeas is consolidating facilities from Batavia andNaperville.

• TCF Financial subleased 45,000 square feet from PepsiCo in Schaumburg. Along with Bank of America's renewal, the financial sectorwas active this quarter.

• Five out of eight renewal/sublease transactions occurred in the struggling Northwest submarket. This may suggest some success in itsfight to keep tenants.

• OUTLOOK: Increased leasing activity is expected as tenants are forced to make decisions. Expect more companies to contract when theysign new leases. With many traditionally single-tenant corporate campuses no longer desired by tenants, such as United Airlines andAT&T, they may enter the competitive space market.

NEW


Sysmex Relo North 555 Aptakisic Rd, Lincolnshire 160,000Sickich Relo East-West 1415 W Diehl Rd, Naperville 80,000American Board of Radiology New O'Hare 5440 N Cumberland Ave, Chicago 50,000U.S. Military Entrance Processing Command Relo O'Hare 8700 W Bryn Mawr, Chicago 31,906SHC Direct Relo East-West 1815 S Meyers Rd, Oakbrook Terrace 22,187Centene Corporation New East-West 999 Oakmont Plaza Dr, Westmont 21,966RFIDeas Relo Northwest 4020 Winnetka Ave, Rolling Meadows 20,363Total - 7 Deals 386,422

RENEWAL/EXPANSION/SUBLEASE

Tenant Submarket Building Address Size (sf)

CVS Caremark Ren North 2211-2215 Sanders Rd, Northbrook 266,000 CVS Caremark Ren Northwest 800 Biermann Ct, Mount Prospect 117,000 AT&T Ren Northwest 930 National Pky, Schaumburg 106,000 Bank of America Ren Northwest 1600 Corporate Center, Rolling Meadows 92,825 Paylocity Ren/Exp Northwest 3850 N Wilke Rd, Arlington Heights 70,000 TCF Financial Corp. Sub Northwest 1475 E Woodfield Rd, Schaumburg 45,156 STMicroelectronics Ren Northwest 1375 E Woodfield Rd, Schaumburg 27,000 Valtera Corp. Ren/Exp Northwest 1701 Golf Rd, Rolling Meadows 23,682 Healthcare Financial Management Association Ren East-West 2 Westbrook Corporate Ctr, Westchester 23,000 Toshiba Exp North 704-708 Deerpath Dr, Vernon Hills 21,030 Total - 10 Deals 791,693

LARGE LEASE TRANSACTIONS: NEW ACTIVITY IS MUTED

Abbreviations: Cont - Contraction Exp - Expansion Relo - Relocation Ren - Renewal

SU

BU

RB

AN

CH

ICA

GO


DE

MA

ND

ABSORPTIONEast-West rebounds; what will higher corporate taxes do to tenant demand?

• Absorption was negative in all submarkets except the East-West during the quarter. Year-to-date negative absorption is now 778,000square feet, rapidly approaching 2010's totals.

• OUTLOOK: The state's higher corporate income tax provides further disincentive to tenants to remain in Suburban Chicago and givesrationale to explore moves to other states. While occupancy losses have nearly reached the magnitude of employment losses, factorssuch as increased taxes may push occupancy losses further.

SUBURBAN CHICAGO ABSORPTION BY CLASS: NEGATIVE ACROSS CLASSES

EAST-WEST 2003 2004 2005 2006 2007 2008 2009 2010 YTD 2011

Class A (1,044,708) 1,080,332 102,299 366,688 542,281 (259,973) (520,909) (219,164) 19,118

Class B (499,928) (25,541) 389,014 484,869 (203,072) (2,062) (461,943) 67,827 (104,885)

Class C (49,662) 76,936 85,269 (125,850) (108,813) (87,441) (217,479) 7,017 36,156

Total (1,594,298) 1,131,727 576,582 725,707 230,396 (349,476) (1,200,330) (144,319) (49,611)

NORTH 2003 2004 2005 2006 2007 2008 2009 2010 YTD 2011

Class A (617,229) (10,452) 196,403 (100,049) 615,115 (240,617) (486,877) (312,238) (48,100)

Class B (51,905) 62,026 164,357 316,207 355,510 (60,982) (585,395) (319,078) (49,173)

Class C (45,023) (39,173) 12,697 (39,440) 26,935 (2,048) (276,642) (40,044) (44,852)

Total (714,157) 12,401 373,457 176,718 997,560 (303,647) (1,348,914) (671,360) (142,126)

NORTHWEST 2003 2004 2005 2006 2007 2008 2009 2010 YTD 2011

Class A (280,998) 902,901 225,865 (488,651) 10,333 (302,930) (213,601) (21,262) (191,610)

Class B (397,531) 233,613 (234,681) 12,266 (164,112) (261,498) (680,058) (295,928) (295,889)

Class C 22,431 (13,282) (216,898) (15,371) (51,429) (28,362) (32,482) (192,091) (26,413)

Total (656,098) 1,123,232 (225,714) (491,756) (205,208) (592,790) (926,140) (509,280) (513,911)

O'HARE 2003 2004 2005 2006 2007 2008 2009 2010 YTD 2011

Class A (159,845) 402,561 (55,786) 189,235 11,636 (256,325) 46,459 209,180 8,322

Class B 9,761 (306,424) 53,945 7,915 (81,167) (51,601) (291,145) 70,376 (69,871)

Class C (39,147) (15,002) (204,597) 90,170 (50,022) (35,696) (366,438) (10,855) (11,128)

Total (189,231) 81,135 (206,438) 287,320 (119,553) (343,622) (611,124) 268,701 (72,676)

TOTALS 2003 2004 2005 2006 2007 2008 2009 2010 YTD 2011

Class A (2,102,780) 2,375,342 468,781 (32,777) 1,179,365 (1,059,845) (1,174,928) (343,484) (212,270)

Class B (939,603) (36,326) 372,635 821,257 (92,841) (376,143) (2,018,540) (476,802) (519,817)

Class C (111,401) 9,479 (323,529) (90,491) (183,329) (153,547) (893,040) (235,972) (46,236)

Total (3,153,784) 2,348,495 517,887 697,989 903,195 (1,589,535) (4,086,509) (1,056,259) (778,324)

*Numbers in parentheses are negative

SU

BU

RB

AN

CH

ICA

GO


FEATU

RE

SGROSS ASKING RENTSClass A rents rebound from lows even though demand does not seem to warrant growth

• Over the last four quarters, gross asking rents have stabilized across the market. Increases in Class A rental rates balance smalldecreases in Class B and larger decreases in Class C.

• Among Class A submarkets, only O'Hare has seen rental rates fall over the last year. However, as absorption is still negative, landlordsmay need to be more aggressive to entice tenants.

• The largest decrease occurred in the Northwest submarket in Class C space, where average gross asking rental rates are down 17.3percent over the last year to stand at a very low $13.55 per square foot.

• Compared to peak levels, overall gross asking rents have fallen 13.3 percent.

• OUTLOOK: Asking rents, coupled with concession packages, will need to become even more aggressive to jumpstart a recovery in theoffice market before hiring warrants it. However, with asking rents at their lowest point in MB Real Estate’s tracked history, landlordsmay not have any room left to further reduce rents.

Average Direct Gross Asking Rent

AChange over

last yearB

Change over last year

CChange over

last yearTotal

Change over last year

East-West $22.67 1.9% $18.61 -1.5% $15.57 -3.3% $20.33 0.3%North $21.43 1.2% $19.78 -0.5% $16.21 -2.0% $20.49 0.5%Northwest $22.64 2.1% $17.00 -2.0% $13.55 -17.3% $20.17 -0.2%O'Hare $22.61 -2.9% $19.95 6.0% $15.14 10.3% $20.54 1.3%Suburban Chicago Total $22.33 1.2% $18.98 -0.4% $15.22 -3.8% $20.35 0.3%

AVERAGE GROSS ASKING RATES BY CLASS AND SUBMARKET

ASKING RATES ARE IMPROVING IN CLASS A SPACE

SU

BU

RB

AN

CH

ICA

GO


FEATU

RE

SINVESTMENT SALESDistressed sales dominate investment activity with one notable exception in Evanston

On the Market: 2nd Quarter 2011

Building Address Submarket Size (sf) PricePrice per sf * Class Seller Status (Buyer or Listing Agent)

5600 N River Rd, 9450 W Bryn Mawr Ave, & 9525 W Bryn Mawr Ave, Rosemont

O'Hare 608,224 - - ATranswestern Investment Company

On Market

1 Pierce Pl, Itasca Northwest 578,737 - - A Hamilton Partners New on Market (Bentall Kennedy)

500 Park Blvd, Itasca Northwest 450,614 - - A Hamilton Partners New on Market (Bentall Kennedy)

1415 & 1515 W 22nd St, Oak Brook East-West 402,318 - - A TIAA-CREF On Market (Jones Lang LaSalle)

221 & 2215 Sanders Rd, Northbrook North 368,606 - - A Angelo, Gordon & Co. New on Market

231 N Martingale Rd, Schaumburg Northwest 317,198 - - A Keystone Property Group New on Market

747 E 22nd St, Lombard East-West 209,557 $12,000,000 $57 A Vectren Utility Holdings On Market (Jones Lang LaSalle)

909 Davis St, Evanston North 195,245 $40,000,000 $205 A American Real Estate CapitalNew on Market (Jones Lang LaSalle)

150 NW Point Blvd, Elk Grove Village Northwest 176,844 $22,000,000 $124 A Kingsway Financial Services On Market (CB Richard Ellis)

701 E 22nd St, Lombard East-West 173,105 - - A GID Investment LLC Under Contract

1500 W Shure Dr, Arlington Heights Northwest 158,252 - - A Younan Properties On Market

1333 Burr Ridge Pky, Burr Ridge East-West 150,000 $30,000,000 $200 A 1333 Burr Ridge Pky, L.P.New on Market (Holliday Fowler Fenoglio)

IInvestment Sales: 2nd Quarter 2011

Building Address Submarket Size (sf) PricePrice per sf * Class Seller Buyer

1421-1501 W Shure Dr, Arlington Heights Northwest 692,389 $45,450,000 $66 B Motorola Solutions, Inc. Nokia Siemens Networks US LLC

9700 W Higgins Rd, Rosemont O'Hare 276,578 $22,500,000 $81 AWestern National Life Insurance Company

Wintrust Financial Corporation

935 National Pky (3 Properties), Schaumburg

Northwest 167,540 $7,400,000 $44 B Nomura Credit & Capital, Inc. Janko Group

4101 Winfield Rd, Warrenville East-West 167,216 $14,670,000 $88 A M & J Wilkow Ltd. RR Donnelley & Sons Company

18 E Dundee Rd (6 Properties), Barrington Northwest 98,077 $3,500,000 $36 B Barrington Place LLC RCG Management

111 E Busse Ave, Mount Prospect Northwest 97,191 $3,000,000 $31 B Brookfield Asset Management 111 Mount Prospect LLC

1201 Davis St, Evanston North 74,982 $21,266,667 $284 BGeneral Board of Pension and Health Benefits

Northwestern University

4248 Meridian Pky (3 Properties), Aurora East-West 45,093 $1,700,000 $38 BPanattoni Development Company, LLC

Barnett Capital Ltd.

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

• Office sales in Suburban Chicago continue to be associated with distress, with only one core institutional sale during the quarter. Amongreported sales, the price per square foot ranged from $36 to $81 indicative of buildings with low occupancy.

• The exception is in Evanston where Northwestern University bought 1201 Davis Street from General Board of Pension & Health Benefitsof The United Methodist Church. General Board has vacated the property to move into its new build-to-suit headquarters in Glenview,making the property a prime target for the University's administrative offices.

• OUTLOOK: While active, Suburban Chicago has not generated the premier investor interest that characterizes the CBD due to its lackof dynamic demand drivers.

INVESTMENT SALES: INDICATIVE OF DISTRESS

SU

BU

RB

AN

CH

ICA

GO


FEATU

RE

SFORECASTLosses are expected to continue, but the market is synching with the economy

Losses in occupancy continued in Suburban Chicago.Due to the high employment loss, a close correlationbetween occupancy and total employment in previousrecessions, and an increasing trend of relocating tothe CBD, MB Real Estate still expects increasingvacancy in coming quarters. Losses are expected tobe at a slower pace than in previous quarters, withthe severe decreases in the past.

Since occupancy peaked in 2007, it has fallen 6.9percent in Suburban Chicago. Typically, totaloccupancy declines mirror peak-to-troughemployment losses on a percentage basis in thismarket. Total employment declined 7.5 percent in theChicago MSA peak-to-trough; therefore, the officemarket has room for further losses. Suburban Chicagohas few mitigating factors that would change theforecast. Companies, such as Sara Lee, are exploringleaving Suburban Chicago to better accommodate ayounger demographic, leaving behind formerly owner-occupied buildings that may enter the competitivetenant market.

MB Real Estate expects occupancy declines tocontinue until 2012. The large losses from 2009 arenot expected again, but tenants still need to shave offexcess space when their leases expire. Starting in2013, absent a new demand driver, positiveabsorption will occur, but will be deliberate,representing slow growth within companies.

HISTORIC & PROJECTED VACANCY: OVERALL VACANCY RATE WILL PEAK NEAR 24%

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 112,330,401 85,858,311 23.6%2012 112,330,401 85,117,318 24.2%

478,543

(778,324)

1997-2010 Absorption Avg:

YTD 2011 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.

SU

BU

RB

AN

CH

ICA

GO


FEATU

RE

SSUBMARKET MAP

SU

BU

RB

AN

CH

ICA

GO


FEATU

RE

SMARKET STATISTICS

EAST-WESTRBA(sf)

YTDAbsorption (sf)


Direct Vacancy(sf)

Direct Vacancy

%

Occupancy(sf)

Sublease Vacancy

(sf)

Total Vacancy Rate (Vacancy +

Sublease) %

Class A 20,620,544 19,118 62,935 4,296,552 20.8% 16,323,992 706,381 24.8%

Class B 14,533,702 (104,885) (39,451) 3,460,572 23.8% 11,073,129 516,325 27.5%

Class C 4,914,973 36,156 38,155 1,128,212 23.0% 3,786,761 4,635 23.9%

Total 40,069,218 (49,611) 61,639 8,885,337 22.2% 31,183,882 1,227,341 25.6%

NORTHRBA(sf)

YTDAbsorption (sf)


Direct Vacancy(sf)

Direct Vacancy

%

Occupancy(sf)

Sublease Vacancy

(sf)


Sublease) %

Class A 16,865,410 (48,100) (22,626) 3,233,095 19.2% 13,632,315 1,116,284 24.9%

Class B 7,504,352 (49,173) (31,795) 1,658,679 22.1% 5,845,673 105,084 22.2%

Class C 2,573,647 (44,852) (56,319) 557,982 21.7% 2,015,665 13,508 20.6%

Total 26,943,409 (142,126) (110,741) 5,449,756 20.2% 21,493,653 1,234,876 23.7%

NORTHWESTRBA(sf)

YTDAbsorption (sf)


Direct Vacancy(sf)

Direct Vacancy

%

Occupancy(sf)

Sublease Vacancy

(sf)


Sublease) %

Class A 18,526,637 (191,610) (78,689) 3,896,164 21.0% 14,630,473 439,405 23.7%

Class B 9,765,897 (295,889) (157,573) 3,356,793 34.4% 6,409,104 143,596 34.9%

Class C 2,305,378 (26,413) 4,223 691,147 30.0% 1,614,231 32,112 31.4%

Total 30,597,911 (513,911) (232,039) 7,944,104 26.0% 22,653,807 615,113 27.9%

O'HARERBA(sf)

YTDAbsorption (sf)


Direct Vacancy(sf)

Direct Vacancy

%

Occupancy(sf)

Sublease Vacancy

(sf)


Sublease) %

Class A 7,824,658 8,322 5,571 1,595,691 20.4% 6,228,967 176,497 22.4%

Class B 4,348,908 (69,871) (26,627) 1,410,318 32.4% 2,938,590 208,792 36.8%

Class C 2,546,296 (11,128) (11,128) 927,608 36.4% 1,618,688 2,695 36.3%

Total 14,719,862 (72,676) (32,184) 3,933,617 26.7% 10,786,245 387,984 29.0%

TOTALSRBA(sf)

YTDAbsorption (sf)


Direct Vacancy(sf)

Direct Vacancy

%

Occupancy(sf)

Sublease Vacancy

(sf)


Sublease) %

Class A 63,837,249 (212,270) (32,810) 13,021,502 20.4% 50,815,747 2,438,567 24.2%

Class B 36,152,858 (519,817) (255,446) 9,886,362 27.3% 26,266,496 973,797 29.5%

Class C 12,340,294 (46,236) (25,069) 3,304,949 26.8% 9,035,345 52,950 27.2%

Total Suburban 112,330,401 (778,324) (313,325) 26,212,813 23.3% 86,117,588 3,465,314 26.2%

CH

ICA

GO

MA

RK

ET O

VE

RV

IEW


SECTION FOUR

ADDITIONAL INFORMATIONGLOSSARY

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 mayvary 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 metropolitanstatistical area (MSA) describing the level of real estate development foundthere. The CBD is characterized by a high density, well organized core withinthe largest city of a given MSA.

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

Direct Vacant Space: Space that is being offered for lease directly from thelandlord or owner of a building, as opposed to space being offered in abuilding by another tenant (or broker of a tenant) trying to sublet a space thathas 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 certificateof occupancy and are able to be occupied by tenants. Calculated by addingthe Rentable Building Area (RBA) of all properties in a market or submarket.

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

Lease Comparable: Comparables are properties with characteristics thatare 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 primarycompetitive set of areas. Markets are building type specific and are non-overlapping contiguous geographic designations. Markets can be furthersubdivided into Submarkets.

Net Rental Rate: A rental rate that excludes certain expenses that a tenantcould incur in occupying office space. Such expenses are expected to bepaid 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 leasedprior 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 beoccupied by, or assigned to a tenant for the purpose of determining atenant’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 quotedon 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 beingoffered 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 coregroup of buildings that are competitive with each other and constitute a generally accepted primary competitive set, or peer group. Submarkets arebuilding type specific (office, industrial, retail, etc.), with distinct boundariesdependent on different factors relevant to each building type. Submarketsare 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) designationsrefer to a particular geographic area within a metropolitan statistical area(MSA). Suburban is defined as including all office inventory not located inthe CBD.

Tenant Improvement: Those changes to property to accommodate specificneeds of a tenant. TIs include installation or relocation of interior walls orpartitions, 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 beunder construction after it has begun construction and until it receives a certificate of occupancy.

Vacancy Rate: A measurement expressed as a percentage of the totalamount 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 vacantspace.

Vacant Space: Space that is not currently occupied by a tenant, regardlessof any lease obligation that may be on the space. Vacant space could bespace that is either available or not available. For example, sublease spacethat is currently being paid for by a tenant but not occupied by that tenant,would be considered vacant space. Likewise, space that has been leasedbut 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 cumulativefrom the beginning of a calendar year through whatever time period is beingstudied.

MB

RE

AL E

STATE

27

ABOUT MB REAL ESTATEOur 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 HEADQUARTERS335 Madison Avenue, 14th FloorNew York, New York 10017phone: 212.350.2300fax: 212.350.2301

COMPANY LEADERSHIPPETER E. RICKERChairman & CEO

JOHN T. MURPHYPresident

DEPARTMENT LEADERSHIP

MARK A. BUTH Senior 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 & Managing Director of Asset Management

EVE WEST Chief Administrative Officer & Managing Director, Support Services

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 needsand 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 informationtechnology teams, our unique full-service firm is an industry leader in local and national corporate real estate.

S E C O N D Q U A R T E R 2 0 1 1 | C H I C A G O M A R K E T O V E R V I E W

Documents

MB Real Estate's 2011 2nd Quarter Chicago Market Overview