S U B M A R K E T R E P O R T

O’Hare Area Submarket, Chicago MSA Third Quarter 2007

SUBMARKET MAP SUBMARKET FACTS

Submarket Metro


12


294

Population 705,444 8,669,654



14

Avg. Annual Five-Year Chg.* -0.3% 0.7%



90 

94

Total Households 248,980 3,095,362

Avg. Annual Five-Year HH Chg.* -0.6% 0.4%

Median Household Income $52,198 $60,565

O'Hare
O'Hare Median Age 36.4 35.2



294
Area
Area Employment 273,650 3,962,437


90



290


12 Vacancy Rate (2Q 07) 20.5% 16.5%

Avg. Asking Rent (2Q 07) $24.16 $25.99

* 2006-2011 Forecast

SUBMARKET VACANCY RANKING SUBMARKET HIGHLIGHTS

2Q 07 2Q 07 Fundamentals in the O’Hare Area submarket have
Submarket Vacancy Asking Rents strengthened over the last 12 months, positioning prop-
erty values to make a strong run over the next several
North 13.2% $23.44
years. Vacancy, currently at 20.5 percent, is expected to
West Loop 13.3% $31.95 fall below 15 percent by 2010 due to reduced construc-
tion and steady growth in office-using employment. As
South Loop 15.1% $27.23 the vacancy rate improves, owners will seize the oppor-
tunity to raise rents aggressively and eliminate conces-
Central Loop 16.2% $28.83 sions. Forecasts through 2010 call for asking rents to
climb approximately 10.1 percent to $26.60 per square
East Loop 16.2% $28.49 foot, while effective rents will increase 14.5 percent to
$21.94 per square foot.
North Michigan Avenue 16.9% $30.80 Financial concerns could slow sales growth over
the next 12 to 24 months as loan underwriting criteria
Southwest 17.1% $18.03 changes. Wide expectation gaps exist between buyers
and sellers, and owners expecting to receive attractive
West 19.6% $22.07 offers at the high-end of the market need to renew leas-
es for longer terms at higher rents before bringing their
O’Hare Area 20.5% $24.16 properties online. Meanwhile, investors wishing to
acquire assets within the submarket should acknowl-
Northwest Suburbs 20.8% $21.72
edge that operating conditions are becoming more
favorable, and if the projected NOI growth of 15 per-
cent is met with cap rates reductions of 30 basis points,
property values may increase as much as 21 percent
over the next three years.

Neil Evans © Marcus & Millichap 2007

Research Associate www.MarcusMillichap.com
O’Hare Area Submarket, Chicago MSA Office Submarket Report ◆ Third Quarter 2007

Construction Trends CONSTRUCTION TRENDS

◆ After falling more than 77 percent last year, construction is expected
Square Feet Completed (thsouands)

600
to rebound 93 percent in 2007 to approximately 253,000 square feet.
450
◆ There is currently 864,000 square feet under construction in the
300 O’Hare Area submarket, including the 253,000-square foot AMB
Wille Distribution Center. The project, which is slated to come
150 online by year end, will be this year’s only completion.

0 ◆ The 441,000-square foot data center and substation being devel-

03 04 05 06 07* oped by the Ascent Corporation is expected to be the largest office
* Forecast
Sources: Marcus & Millichap Research Services, Reis, TWR development in the last five years, upon its projected completion
in the second quarter of 2008. Early estimations show that 611,000
square feet will be delivered next year.

RENT AND VACANCY TRENDS

◆ Over the last 12 months, vacancy has increased 60 basis points to
20.5 percent, as the submarket is struggling to absorb the new
Asking Rent and Vacancy Trends
space that came online in 2005 and 2006. Vacancy is expected to
Average Asking Rent per Square Foot

Average Asking Rent 21%

$25 decline 110 basis points to 19.4 percent, however, as solid job
Vacancy
growth in office-using sectors will more than offset the stock fore-
$24 20%
cast for delivery by year end.
Vacancy Rate

$23 19%
◆ As vacancy trends lower over the second half of the year, conces-
sions will be reduced, improving net operating incomes. Effective
$22 18%
rents are expected to climb 4.1 percent to $19.42 per square foot,
while asking rents will improve 3.6 percent to $24.37 per square
$21 17%
03 04 05 06 07* foot by year end.
* 2Q 2007
Sources: Marcus & Millichap Research Services, PPR, Reis
◆ Owners will continue to aggressively raise rents over the next
three years, as forecasts call for the vacancy rate to reach 14.5 per-
cent by the end of 2010. Asking and effective rents will advance
10.1 percent and 14.5 percent to a respective $26.60 per square foot
and $21.94 per square foot during that time.

Sales Trends SALES TRENDS

$140 ◆ Lack of for-sale inventory has decelerated sales velocity by 8 per-
Median Price per Square Foot

cent over the last 12 months. Lenders have tightened their criteria
$120 for underwriting loans, including the increase in debt-coverage
ratios from 1.1 percent to nearly 1.2 percent.
$100
◆ Lower sales velocity and tougher lending standards have con-
$80 tributed to declining property values. During the past 12 months,
the median sales price has fallen approximately 8 percent to $118
$60 per square foot.
03 04 05 06 07*
* Trailing 12 Months Ended June 30
Sources: Marcus & Millichap Research Services, CoStar Group, Inc. ◆ Despite regressing sales velocity and prices, the submarket is
poised to rebound. Solid employment growth and strong funda-
mentals should lead to increased investor interest over the next
two to three years.

Neil Evans © Marcus & Millichap 2007

Research Associate www.MarcusMillichap.com
Sources: Marcus & Millichap Research Services, BOC, CoStar Group Inc., RCA, Reis, SRC, TWR
The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.