The suburbs have already seen an exodus, of sorts, to downtownChicago, such as United Airlines and The Warranty Group, saysAndrew Davidson, EVP and managing director of corporate servicesfor MB Real Estate. The mortgage crisis and economy have caused theChicagoland markets to worsen and, with more mortgage and lendingcompanies based in the suburbs than downtown, the suburbansubmarkets have fared the crisis much worse. The suburbansubmarkets saw nearly 1.2 million sf of negative absorption for thefirst quarter of the year, compared to 450,058 sf of positiveabsorption in the fourth quarter of 2007, according to MB RealEstate's market report. The Northwest submarket, where quite a fewof the mortgage and lending companies were based, was the hardesthit with the highest increase in vacancy for the first quarter ofthe year, Davidson says. "I think a lot is going to depend on theeconomy and where it is going," he says.

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Sublease opportunities are expected to increase in the next 18to 24 months. Walgreens is subleasing the 321,320-sf Two OverlookPoint in Lincolnshire, IL from human resources consulting firmHewitt Associates Inc., Davidson says. Hewitt is also subleasing290,000 sf in another building. "Another reason the suburbs aresuffering more than downtown is that they have a larger call centercomponent that is subject to outsourcing overseas, which is thecase with Hewitt," Davidson says. About two blocks of subleasespace with a total of more than 450,000 sf will roll over beforeJuly, according to MB's report.

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Annual average Class A asking lease rates have increased 9% eachyear since 2005, according to a market report from UGL Equis.However, rates are expected to decrease this year.

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Usually, Class A office buildings fare better than the overallmarket, but this is not the case in the Chicago suburbs. Class Abuildings have had the highest negative absorption in the firstquarter of the year, due in part to companies downsizing andconsolidating, in addition to business closures, according to theMB report. Healthcare and pharmaceutical companies are continuingto do well, as is the North submarket, where many of them arebased, Davidson says. "The northern market is fairly strong," hesays.

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There are currently 10 projects with a total of 1.7 million sfunder construction in the suburbs with only 13.8% of the spacepre-leased, according to the Equis market report. In the East-WestCorridor, the $300 million CityGate Centre I is being developed byChicago-based Calamos Real Estate. As with the Chicago CBD market,the suburban submarkets are shifting to a tenant's market, which isexpected to only increase as new space comes online. Landlords willlikely initially boost concessions before reducing rental rates,Wood says.

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