Down 6 Places 2008 Rank: 18 2007 Rank: 12 Chicago

Increased Suburban Development Pushing

Chicago Vacancy Higher

C
onditions will remain generally positive in Chicago through the rest of Employment Trends
this year, although a significant dropoff in absorption will lead to a Metro United States
4%
vacancy uptick and fairly modest rent gains. The vacancy rate in
suburban submarkets is expected to rise 40 basis points in 2008 to 11 percent

Year-over-Year Change
as recently built speculative space weighs on the market. Specifically, 3%
properties built since 2006 were approximately 50 percent vacant at the end
of the first quarter, whereas smaller multi-tenant assets typically have 2%
vacancy rates in the single digits. Significant projects are scheduled to come
online in submarkets such as the South I-55 Corridor, although some 1%
buildings that have not yet broken ground may be delayed until 2009.
Oswego and Minooka are also targeted for substantial development activity 0%
in 2008. Investors remain highly motivated in the suburbs; top-tier assets in 04 05 06 07 08*
areas such as Bolingbrook and Romeoville can price at cap rates of 6 percent
or less, while other properties in coveted DuPage and Will counties can Industrial Supply and Demand
command initial returns of 6.8 percent to 7.1 percent. Completions Absorption Vacancy Rate
16 12%
In downtown Chicago, leasing volume was declining in the first half of

Square Feet (millions)

this year, and the area’s vacancy rate is expected to rise 10 basis points to 9.6 12 11%
percent in 2008. In the investment arena, the median price of downtown

Vacancy Rate
properties has climbed 20 percent over the past 12 months to $70 per square 10%
8
foot. Much of the increase, though, was attributable to higher prices paid by
owner-users and conversion- and redevelopment-oriented investors. Despite
4 9%
a softer local economy, owner-users may remain active buyers through the
rest of this year, as firms that require downtown locations typically generate
consistent demand for such spaces. Ambitious conversion or redevelopment 0 8%
04 05 06 07 08*
buying, however, will likely diminish, except in instances where investors
can put down considerable amounts of equity.
Asking Rent Growth
8%
2008 Market Outlook
Year-over-Year Change

◆ 2008 NII Rank: 18, Down 6 Places. Healthy completions and cooling 6%
absorption drove Chicago down six places in the ranking.
4%
◆ Employment Forecast: After 24,300 new positions were created in 2007,
employment growth will slow to 5,000 jobs this year, a 0.1 percent increase.
2%

◆ Construction Forecast: Projects totaling 9.6 million square feet are slated
for delivery in 2008. Nearly all of the space is in suburban submarkets, 0%

and some projects could be delayed until 2009 due to the slowing 04 05 06 07 08*
economy. Last year, 10.4 million square feet was completed.
Sales Trends
◆ Vacancy Forecast: The vacancy rate in Chicago is projected to rise 70 basis
$70
points to 10.7 percent in 2008. Reasonably strong demand in the final two
Median Price per Square Foot

quarters underpinned a 20 basis point drop in vacancy last year.

$60
◆ Rent Forecast: Asking rents are forecast to increase 0.4 percent to $5.15
per square foot this year, and effective rents are expected to tack on 0.2 $50
percent to $4.55 per square foot. In 2007, asking and effective rents rose
1.0 percent and 1.2 percent, respectively. $40

◆ Investment Forecast: Value-add opportunities exist, but buyers will

$30
have to put more cash into deals to satisfy lenders’ requirements. Some
04 05 06 07 08**
deals may not pencil out as a result, suggesting that leveraged value-add
investors will play a lesser role in the market this year. * Forecast ** Trailing 12-Month Period

Market Forecast Employment: 0.1% ▲ Construction: 8% ▼ Vacancy: 70 bps ▲ Asking Rents: 0.4% ▲

Midyear 2008 Report page 11