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

Far South Submarket, Chicago MSA Third Quarter 2007

SUBMARKET MAP SUBMARKET FACTS



12 Submarket Metro



294
Population 727,116 9,531,487

Avg. Annual Five-Year Chg.* -0.4% 0.7%

Total Households 255,242 3,420,599

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

Far
Far South
South


41 Median Household Income $52,344 $59,585


6



94 Median Age 36.8 35.3

80
Employment 229,061 4,292,030


80
Vacancy Rate (2Q 07) 11.2% 7.6%

Avg. Asking Rent (2Q 07) $14.83 $19.31



57



30 * 2006-2011 Forecast

SUBMARKET VACANCY RANKING SUBMARKET HIGHLIGHTS

2Q 07 2Q 07 The Far South submarket has struggled to retain ten-
Submarket Vacancy Asking Rents ants over the past 5 years causing vacancy to rise to a
metro-high 11.2 percent in the first half of this year.
South 4.0% $20.60
Improving fundamentals will help alleviate vacancy con-
cerns as the submarket is forecast to absorb the new con-
North 5.7% $25.94
struction coming online in the next few years, pushing
vacancy down to the high-8 percent range by 2010.
Far North 6.5% $22.01
Over the past 12 months, sales velocity dropped
approximately 16 percent and 35 percent for single- and
Near West 6.5% $18.67
multi-tenant properties, respectively. During the same
time, sales velocity for national, single-tenant properties
Far Northwest 6.7% $17.35
was double multi-tenant sales, showing investors are look-
Southwest 6.8% $16.88
ing for stable assets. The changes in lending practices have
made it almost impossible for properties to be valued on
Arlington Heights 7.7% $16.76
pro-forma financials. Due to these stricter standards, own-
ers need to strengthen their balance sheets in order to start
Far West 7.7% $19.85 receiving competitive offers. Owners filling vacancy with
national tenants, thus improving stability in their invest-
Lombard/Addison 8.5% $19.61 ments, can improve property values in the submarket.
While the quality assets are moving the quickest in
Far South 11.2% $14.83 the submarket, the credit crisis has given an advantage to
the cash buyers and the exchange buyers, as they are bet-
ter-suited to gain loan approvals. Despite the possibility
of negative leverage, local buyers are still executing 1031-
exchanges into turn-key operations for stable cash flows.

Jarrod Thuener © Marcus & Millichap 2007

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

Construction Trends CONSTRUCTION TRENDS

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

1,000
construction, delivering an average 665,000 square feet of retail
750 space, per year.

500 ◆ In 2007, builders are expected to deliver approximately 550,000

square feet to the submarket with no project larger than 125,000
250 square feet. There are nine projects under construction totaling
520,000 square feet, with half of those projects due throughout 2008.
0
03 04 05 06 07* ◆ Builders are now focusing on larger developments, as the plan-
* Forecast
Sources: Marcus & Millichap Research Services, Reis, TWR ning pipeline has over 2.8 million square feet with the average
development size of 160,000 square feet.

Asking Rent and Vacancy Trends RENT AND VACANCY TRENDS

Average Asking Rent per Square Foot

$16
Average Asking Rent 16% ◆ In 2006, vacancy jumped 330 basis points in response to the deliv-
Vacancy
ery of over 1.4 million square feet in two years time. The sub-
$15 14% market has since recovered, with over 292,000 square feet of
Vacancy Rate

space absorbed in the first half of this year, and a 30 basis point
$14 12% drop in vacancy.

$13 10% ◆ Rents jumped 4.5 percent in 2005 followed by a slight 1 percent
increase in 2006 to reach $14.59 per square foot. During the first half
$12 8% of this year, rents rose 1.6 percent to reach $14.83 per square foot.
03 04 05 06 07*
* 2Q 2007
Sources: Marcus & Millichap Research Services, PPR, Reis ◆ Due to the increasing vacancy, effective rents have not kept up
with asking rents, causing concessions to increase as owners
attempt to improve occupancy.

Sales Trends
SALES TRENDS
$240 Single Tenant Multi Tenant ◆ Sales velocity in single-tenant properties is up 38 percent in the
Median Price per Square Foot

last year compared to the previous 12-month period. Multi-tenant

$180 velocity has remained consistent over the past year, but still down
approximately 30 percent from 2005 velocity.
$120
◆ Single-tenant median sales price over the last year increased 8 per-
$60 cent when compared with the previous 12-month period. Multi-
tenant median sales price fell 8.7 percent during the same period.
$0
03 04 05 06 07*
* Trailing 12 Months Ended June 30
◆ Both single- and multi-tenant cap rates are currently in the low-7
Sources: Marcus & Millichap Research Services, CoStar Group, Inc. percent and mid-7 percent ranges, respectively.

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.