Julien J. Studley Inc.'s Chicago office reports available sublease space in the Central Business District has increased steadily and dramatically in the first quarter of 2001 to 3.5 million sf. "That could be partly due to the dot-com fallout," says broker Frank Hartmann, known as "e-frank" among his colleagues for his specialization in representing e-commerce tenants.

However, the overall vacancy rate Downtown has increased from 10.7% in the fourth quarter of 2000 to 11.1% today. Although hardly a sharp increase, it's enough to tilt the balance of negotiating power away from property owners, a few of them ruing their decision to rent to a start-up. And Julien J. Studley's forecast is for rents dropping 10% to 15%.

"From a rental rate standpoint, the dot-com massacre or whatever you want to call it has stabilized rates that were already flattened due to contraction," says Joe Zona, an associate with Equis Corp. Adds senior vice president Mark Powell, "Had there not been a dot-com shakeout, with the space that came on line and with the downturn in the economy, that was enough to make the market stablize." Add in the dot-com disappearing acts and excess space coming on the market, the increase in sublease space is having an effect on direct space, Powell adds.

Any lessor's remorse is muted, however, by the quality of space that may have been created during tenant improvement. "It's attractive space because it's already built out and some of the concepts put together by the dot-coms are likeable for companies wanting to go with a short-term play," Hartmann says. He recalls one building owner who installed top-of-the-line phone lines, and added top-notch equipment, only to see his tenant go out of business.

While Hartmann thinks the market may not have seen the last dot-com drown in red ink, his view of the future isn't entirely bleak. "I don't think tech or the dot-com business will disappear," says Hartmann, who was in communications and lobbying for the Building Owners and Managers Association before joining Studley a year ago.

Even during the dot-com frenzy that saw multiple bidders for space, property owners were leery of potential tenants, especially at first, Hartmann says. "Traditionally, Chicago's been more of a big shoulders type of mentality. Owners always review financials, more so now," he adds.

That includes demanding heftier letters of credit, Equis' Zona says. However, Powell adds, "If you're an investment-grade tenant, you might be able to get around that."