Brokerage Outlook: Illinois

• Chicago Retail

• Chicago Multifamily

• Chicago Office

• Chicago Industrial

Chicago Retail Martin Submitted by Dan Martin, managing director with the Arlington Heights, Illinois, office of Sperry Van Ness/Prism Commercial Real Estate. Posted 08/03/07.            What area is your expertise? • I specialize in retail and retail land in Chicago. What trends do you see presently in retail development in your area? • I am now seeing companies that previously were just buyers or holders of retail centers getting into retail center development. What type of retail product is doing well in your area? • Big-box centers that have credit tenants and big-box outlet centers are both doing well. What retailers are new to your area? • JC Penney concept stores are new to our area. Who are the active retail developers in your area? • Forest City, Tucker Development Corp., Joseph Freed and Associates and Mid America Development Partners. Please name one or two significant retail developments in your area. What impact will these projects have on the market? • Metropolitan Square in Des Plaines, Ill., is owned and developed by Tucker Development Corp. with The Fresh Market, Cheeseburger in Paradise, Talbots and Famous Footwear. The Promenade Bolingbrook in Bolingbrook, Ill., is being built by Forest City and includes Macy’s, Bass Pro Shops Outdoor World, Aéropostale and Barnes & Noble. Where is the majority of development taking place? Why is this area doing well? • Southwest of Chicago is seeing the majority of development. What area do you expect to be the next big retail development market? Why? • I believe the next retail push will be in the inner city areas, not far from the Chicago condominium market. The growth in population from condo and townhome purchases is too lucrative to pass up. Please describe the retail leasing activity in your area.  • Overall, they are steady at about a 7 percent vacancy, rents are rising, but only at a 2 percent rate. Would you like to make any additional observations about the retail market in your area? • The investment market continues to favor sellers. The economics of supply and demand, or in the case of retail product, the lack of supply, has caused cap rates to hold in the sub 7 percent range for triple net properties and 7.2 to 7.5 percent range for multi-tenant.

Chicago Multifamily DePasquale Submitted by Ralph DePasquale, senior investment advisor with Hendricks & Partners. Posted on 09/21/07. What trends do you see presently in multifamily development in the Chicago metropolitan area? • There are definitely a number of cranes up in the city but the suburbs are seeing very little multifamily development. Downtown continues to see mostly condominium development. The suburbs currently have about 1,400 units under construction. That includes all the collar counties so that is a very low number for a population of more than 8 million.            Please name some significant developments that have or will take place in the area, and the impacts they will have on the market. • Chicago has not seen anything significant happen. The slow down in suburban condominium conversions has helped potential investors be more competitive with regard to purchasing communities. With the rate of foreclosures going up on single-family homes, as well as new restrictions on mortgages, we have seen a significant jump in occupancies and even some very positive rent growth. More positive news would be landing the Olympics in 2016. Where is the majority of development taking place? For what reason? • As I mentioned above, most development is occurring downtown, with both rental and for-sale condominium. The suburban market continues to see development of for-sale product such as townhouses, but on a much slower pace. Within the downtown market, the South Loop area is seeing tremendous development and has become one of the hottest areas in the country. What developers are new to the Chicagoland market? • No new developers in the market. What types of projects are being developed and what types of tenants are developers looking to attract? • New developments are still geared towards higher-end, young professionals in the downtown markets. Suburban developments are also targeting this group with Class A projects with strong amenities. What is the range for rental rates for new apartment units in Chicago? For older properties? • Looking at rents for urban Chicago, we find rents in the $2.10 to $2.60 per foot for Class A and $1.60 to $2.00 for Class B. Suburban Chicago would be $1.20 to $1.50 for Class A and $.80 to $1.10 for Class B. Vacancy rates? • Vacancy rates have really declined in the past six months to a year with some suburban markets reporting at low as 2.5 percent, but an overall rate of about 4.5 percent. Downtown still seems to be hovering in the 3 to 4 percent range. What submarket or corridor should people keep an eye on for the near future? Why? • The South Loop in downtown Chicago continues to grow rapidly. It offers great proximity to the Central Business District (CBD), as well as museums and parks. It has also been a little more affordable, although that is changing quickly. The northwest suburban corridor to Rockford will be prominent for sometime. With the growth of Rockford and the northwest suburbs of Chicago due to corporate headquarters and distributions hubs, this area has excellent long term potential for sustained growth. How do you think the market will continue to grow? • Jobs and population growth are the keys. You cannot have a growing development market for multifamily, or anything else really, without both. Chicago has been one of the few Midwest cities that have seen both. Modest, but at least positive. Being the financial center of the Midwest and the distribution hub of the country, Chicago should continue to thrive.

Chicago Office Watts Submitted by Michael Watts, senior vice president with the Chicago office of J.F. McKinney & Associates Ltd. Posted 7-28-06. What area is your expertise? • downtown Chicago office leasing What trends do you see presently in office development in your area? • Chicago is still a tenants' market — but landlords are getting happier every day. As vacancy is gradually falling, concessions are gradually falling. Within that context, several specific trends are playing themselves out. First, in office leasing, higher views mean higher rents. Do you want to see the sailboats on Lake Michigan from your Chicago office window? You'll have to find it first — and then you'll have to pay for that view. While good views of the lake and city have always warranted premium rents, this has never been more true. Offices that are on the higher floors with appealing views are commanding significantly higher rents and demonstrating lower occupancy rates than their lower counterparts. In fact, while the overall downtown office vacancy rate is approximately 15 percent, space in premium offices with views is coming in at less than 6 percent vacant. Second, new development planning is being driven by rising construction costs. The cost of raw materials is so high right now that it does not make sense to build a standard cookie-cutter building — tenants will only pay premium rents that justify the cost of construction in the highest-quality, Class A+ office towers, with all the bells and whistles of a state-of-the-art facility and world-class architecture. Who are the active office developers in your area? • Active office developers continue to be the "usual suspects" in this marketplace. The John Buck Company, Hines, Higgins Development Partners and Fifield Companies are considered the most active in the downtown market. Please name one or two significant office developments in your area. • The next two new 1 million-square-foot-plus office towers are not scheduled to be delivered until 2009 or 2010. These two projects include the 1.3 million-square-foot Hines project at 300 North LaSalle, anchored by law firm Kirkland & Ellis, as well as the 1.1 million-square-foot Mesirow Stein building at 351 North Clark, anchored by law firm Jenner & Block. What impact will these projects have on the market? Both of these projects will bring Class A+ office towers to the River North area for the first time. This location north of the Chicago River provides access to retail and lifestyle amenities that are located outside the traditional central business district. Additionally, the timing of these two new projects is fortuitous for the overall health of the office market. The leasing market will have 3 more years to finish absorbing the 5 million square feet of office space brought online in this last big round of office development. Where is the majority of development taking place? Why is this area doing well? • Right now, the two largest new projects that have been announced are located in River North. However, the majority of development since the turn of the millennium has been in the West Loop area, thanks to its proximity to expressways and commuter rains, as well as the availability of quality sites. This market is not full of older office product like the Central Loop submarket and thus offers more new development opportunities versus redevelopment potential. What area do you expect to be the next big development market? Why? • The West Loop will continue to be the most active market for new development, since the trends that have driven development in this area in the recent past will continue to attract new projects. What areas are doing well in terms of office leasing? Which areas are struggling with office leasing? • The West Loop and River North are doing quite well, with many firms relocating from outgrown offices to new buildings in these two submarkets. Conversely, the Central Loop continues to suffer flight of its traditional base, the financial and legal sectors, to the West Loop. The East Loop, which includes the Millennium Park area, will benefit over the long term from the conversion of selected historic buildings from office to residential use as well as its proximity to Millennium Park. Please give a measure of office vacancy rates. • Vacancy rates in the downtown Chicago office leasing market are around 14.9 percent for overall Class A and B properties. This is an improvement over year-end 2005, when the same properties were approximately 16.8 percent vacant. If you look at the upper floors of buildings with city and lake views, the vacancy rate plummets to 6 percent, and thus that type of space is in some ways a market of its own. Sublease space in downtown Chicago has stabilized to historic norms at around 3 million square feet, down from nearly 6 million square feet in 2001. What impact do current interest rates have on the office market? What predictions do you have for interest rates and their effect on the office market in 2006? • Rising interest rates mean the cost of acquiring a building rises for the high-leverage investor. As this trend continues over time, fewer highly leveraged owners enter the market. As a result, pension funds and other institutional sources of capital should become more active as owners of an increasing percentage of downtown properties. This trend is beginning to take effect but will continue to gain momentum if rates creep up during the next 18 months. As the cost of owning property rises in tandem with increased demand for office space, rents will continue to rise as well. While there is still a significant amount of capital chasing downtown office buildings, most buyers are focused on properties that are 90 percent leased or more. This requirement has arisen because of the expense to install new tenants in a softer market. What is the status of job growth/(un)employment rates and what bearing will it have on the office market? • The negligible job growth that this area has seen in recent years has been coupled with companies' becoming more efficient with their use of space. The result is that while a few net jobs have been added to the regional economy, companies are not leasing the commensurate amount of additional office space. Is there any type of office tenant absorbing a majority of space? What industries do you expect to expand in 2006 to absorb a great deal of office space? What areas will be affected? Hyatt Center in Chicago • The last few years of office leasing transactions have been dominated by large law firm leases. However, that craze is coming to an end. The tenants that are currently driving the most demand for office space are financial services companies. For example, two hedge funds recently leased approximately 13,000 square feet at 71 South Wacker (Hyatt Center). Copia Capital leased 6,000 square feet, while Chicago Fundamental took 7,000 square feet. This is exemplary of the current growth pattern of new financial services companies: lots of modest-sized leases that together represent a significant trend. Because these firms tend to be image-conscious, they seek Class A space in newer buildings. As a result of this growing sector, service firms that support financial companies are also expanding. For example, Computer Discount Warehouse recently expanded its downtown space significantly, and Morningstar will expand by almost 100,000 square feet when it 22 West Washington in Chicago moves into its new headquarters at 22 West Washington in 2008. Would you like to make any additional observations about the office market in your area? • With the downtown office market beginning recovery, many tenants are using this period of time to "trade up." Many companies that once looked into Class B properties are currently able to afford Class A rents on a Class B budget. This trend is temporary, as rents are on the rise — but it has been the case for the last several years.

Chicago Industrial Lynch Submitted by Kevin Lynch, managing director with Arlington Heights, Ill., office of Sperry Van Ness Commercial Real Estate Advisors. Posted 06/27/07. What area is your expertise? • The Chicago area industrial market. What trends do you see presently in industrial development in your area? • The two hottest industrial trends that continue to achieve the highest growth rate and occupancy rate are big box warehouses and intermodal facilities around the Chicago area. The big box warehouses are being developed along the Interstate 55 corridor (southwestern suburbs) and the Interstate 39 corridor. While these speculative buildings are built to accommodate multi-tenant occupancy, the demand and final occupancy has been primarily for single tenancy. This new construction includes modern technological features including ultra-hard, ultra-flat floors, air rotation heating units and 400 watt HID metal halide lighting. The new properties also offer wider bays, higher ceilings and larger truck docks. What type of industrial product is doing well in your area? • Warehouse and distribution space with ceiling heights greater than a 21-foot clear continue to do well in most submarkets. Modern properties that can be purchased by end users also generate demand as the investor market has absorbed much of the supply. Manufacturing slowed approximately 7 years ago and has not picked up. That said, quality manufacturing properties remain leased as companies have moved to increase efficiencies. Who are the active industrial developers in your area? • The most active industrial developers include CenterPoint Properties, DP Partners, Panattoni Development Company, Liberty Property Trust, The Missner Group, Pizzuti Companies and ProLogis. Please name one or two significant industrial developments in your area. What impact will these projects have on the market? • The most significant industrial development in the Chicago area really has to go to the unbelievable development push along the I-39 corridor. This corridor runs from Beloit, Wisconsin, south to Bloomington/Normal, Illinois, and bypasses Chicago highway congestion. It does offer multiple highways into Chicago and all points east, west, north and south. No one developer controls all the sites. Wal-Mart, FedEx, UPS, Daimler Chrysler, Con Agra, General Motors, Sara Lee, PetsMart, Lowe’s Home Improvement Warehouse, Staples, DelMonte, Mitsubishi and 3M all have found this corridor to be a desirable location. Construction at the second most significant industrial development should begin in the summer of this year. The development, a new intermodal facility located in Crete, Illinois, which was developed by CenterPoint Properties, will be on 850 acres and served by the Union Pacific and CSX railroads. Where is the majority of development taking place? Why is this area doing well? • There is over 1 billion square feet of industrial properties in the Chicago marketplace. Finding affordable land for large new developments has required developers to look beyond the Chicago suburbs and speculate in surrounding counties. The I-39 corridor is an excellent example of developers understanding and providing for customers’ growth needs. What area do you expect to be the next big industrial development market? Why? • One of the major reasons the I-39 corridor is succeeding is due to the CenterPoint Intermodal Center in Rochelle, Illinois. CenterPoint Properties appears to be creating the same concept in Crete, Illinois. Intermodals are critical as more products are imported from overseas, either trucked or sent by rail across the country and often through the Chicago area. Please describe the industrial leasing activity in your area. • Activity in industrial leasing in the Chicago marketplace varies by submarkets and the quality of the property. Per CoStar data we see that overall vacancy is at 10.3 percent. This is slightly higher than 1 year ago. Communities near Chicago O’Hare International Airport and northern Cook County recorded vacancy as low as 5.2 percent, which can be attributed to the lack of new construction and user demand for properties near the diverse labor market Chicago offers. Please describe the industrial sales activity in your area. • Industrial sales remain very strong with investors beating out users in purchasing properties. It seems that investors understand better than most users that the purchase price is substantially less than new construction, especially in submarkets with few available land sites. Please give a measure of industrial vacancy rates and a measure of available sublease space. • The current industrial vacancy rate for the Chicago market is 10.3 percent. The current industrial sublease vacancy rate is approximately 0.5 percent. What impact do current interest rates have on the industrial market? What predictions do you have for interest rates and their effect on the industrial market in the next year? • The recent fluctuation in interest rates momentarily slowed investor demand due to uncertainty in the trend. Investors paused briefly and then went back on a buying spree that has continued to lower the CAP rate further. Apparently, investors are willing to wait for a return to healthy rental rates. We can expect interest rates to stabilize and trend slightly downward over the next 12 months. What industries do you expect to expand in the next year to absorb a great deal of industrial space? What areas will be affected? • We have seen a tremendous push to larger big box facilities and this trend is expected to continue. Where a big box was once considered 250,000 square feet, it is now 1 million square feet with land for expansion. Due to the property size, watch for additional growth in collar counties. Would you like to make any additional observations about the industrial market in your area? • Watch developers who have the skill sets required to make long-term developments like an intermodal facility happen. There is obvious demand for this function in shipping and the customers will insist on proximity to this function.