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

South Submarket, Chicago MSA Third Quarter 2007

SUBMARKET MAP SUBMARKET FACTS

Submarket Metro


290

Lake
Lake
Lake
Population 1,069,167 9,531,487
Lake
Lake
Michigan
Michigan
Michigan
Michigan
Avg. Annual Five-Year Chg.* -0.4% 0.7%


55


90


41
Total Households 347,464 3,420,599

Avg. Annual Five-Year HH Chg.* -0.5% 0.6%

Median Household Income $36,971 $59,585

South
South
Median Age 32.8 35.3



50 Employment 266,193 4,292,030

Vacancy Rate (2Q 07) 4.0% 7.6%



94


90

Avg. Asking Rent (2Q 07) $20.60 $19.31



12

* 2006-2011 Forecast

SUBMARKET VACANCY RANKING SUBMARKET HIGHLIGHTS

2Q 07 2Q 07 The South submarket remains a top performer in
Submarket Vacancy Asking Rents the Chicago MSA by maintaining the lowest vacancy
rate and commanding among the highest rents in the
South 4.0% $20.60
metro. Developers have ramped up the pace of retail
North 5.7% $25.94 construction over the past few years, and are expected
to deliver over 1 million square feet by year-end 2007.
Far North 6.5% $22.01 The market has more than absorbed the over 2 million
square feet completed since 2005, and as a result, vacan-
Near West 6.5% $18.67 cy has declined 70 basis points during the same period
to reach 4 percent in the second quarter of this year.
Far Northwest 6.7% $17.35 Most of the available opportunities in the submar-
ket are turn-key operations, as single-tenant sales dou-
Southwest 6.8% $16.88 bled multi-tenant sales this past year. Value-add prop-
erties, however, should not be ruled out. The submar-
Arlington Heights 7.7% $16.76 ket’s metro-low vacancy can support increases in rent,
as they are only 6.7 percent above the metro average of
Far West 7.7% $19.85 $19.31 per square foot. Owners can strengthen their bal-
ance sheets by increasing rents as leases turn over.
Lombard/Addison 8.5% $19.61 Due to stricter lending standards, properties are
only being underwritten using real numbers, compared
Far South 11.2% $14.83
to the pro forma valuations in recent years. For this rea-
son, owners with well managed properties are going to
receive the most competitive offers in the open market.

Jarrod Thuener © Marcus & Millichap 2007

Research Associate www.MarcusMillichap.com
South Submarket, Chicago MSA Retail Submarket Report ◆ Third Quarter 2007

Construction Trends CONSTRUCTION TRENDS

◆ Over the past few years, developers have ramped up the pace of
Square Feet Completed (thsouands)

1,200
retail construction. Last year, builders delivered over 550,000
900 square feet of retail space to the submarket, a 35 percent increase
from the previous year.
600
◆ Developers are set to increase their deliverables again this year,
300 adding an estimated 1.05 million square feet to the submarket by
year end, an 89 percent increase over 2006.
0
03 04 05 06 07* ◆ Builders are expected to focus on larger projects going forward, as
* Forecast
Sources: Marcus & Millichap Research Services, Reis, TWR the six projects in the planning pipeline total approximately 1.5
million square feet.

Asking Rent and Vacancy Trends RENT AND VACANCY TRENDS

Average Asking Rent per Square Foot

$21
Average Asking Rent 10% ◆ Since 2004, vacancy has been declining in the submarket, falling
Vacancy
370 points in 2005 followed by a 50 basis point drop in 2006. In the
$20 8% first half of 2007, vacancy declined 20 basis points to reach 4 per-
Vacancy Rate

cent. Due to increased construction, vacancy is forecast to slightly

$19 6% increase by year end but will remain in the low-4 percent range.

$18 4% ◆ Asking rents continue to post strong growth, gaining 5 percent in

2006 and an additional 2.8 percent in the first half of this year to
$17 2% reach $20.60 per square foot.
03 04 05 06 07*
* 2Q 2007
Sources: Marcus & Millichap Research Services, PPR, Reis ◆ Despite 1.6 million square feet being added to the submarket in the
last two years, strong demand kept vacancy in check, giving own-
ers leverage to raise effective rents faster than asking rents.
Concessions burned over the first half of this year to the equivalent
of 4.3 weeks of free rent, down from 4.5 weeks of free rent in 2005.

Sales Trends SALES TRENDS

$300 Single Tenant ◆ Single-tenant sales velocity increased 13 percent over the past
Median Price per Square Foot

Multi Tenant
year compared to the previous 12-month period, while Multi-ten-
$225 ant sales velocity declined roughly 25 percent.

$150 ◆ After spiking 68 percent in 2006 to reach $275 per square foot, the
median sales price for single-tenant properties declined to $198
$75 per square foot this year, which is still 20 percent above the medi-
an sales price two years ago. Multi-tenant median sales price has
$0
been steadily improving, as it gained 13.6 percent in 2006 and 55
03 04 05 06 07*
* Trailing 12 Months Ended June 30
percent to reach $213 per square foot over the last 12 months.
Sources: Marcus & Millichap Research Services, CoStar Group, Inc.

◆ Single-tenant cap rates are in the mid- to high- 6 percent range,

while multi-tenant cap rates are in the mid-to high-7 percent range.

Jarrod Thuener © 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.