CHICAGO- The suburban office market has struggled for years with recession and the downtown's tendency to draw companies and jobs away. But according to recently released data from MBRE, the suburbs won back a bit of ground in the first quarter, although the vacancy rate remains much higher than in the CBD.

Suburban Chicago lost six million square feet of occupancy during the recession, MBRE notes. Direct vacancy eventually hit 23.6 percent and the market largely stagnated in 2012. But in the first quarter of this year, direct vacancy fell 20 basis points to 23.0 percent and the suburbs had a positive net absorption of 330,000-square-feet. As reported yesterday, MBRE found that some CBD submarkets struggled in the first quarter while others, like River North and the West Loop, did quite well.

Significantly, all suburban building classes saw an increase in occupancy. The Northwest suburbs had the best quarter, accounting for 220,000-square-feet of positive absorption. MBRE says much of this positive absorption may have been driven by a decline in rental rates for Class A space, which fell another 4.1 percent in the past year.

However, partly because large corporations such as Sears and Google have decided to leave their sprawling suburban campuses and migrate downtown, large spaces remain vacant and difficult to fill. “AT&T's combined 1.4 million square feet of sublease space at its corporate campus and a smaller building in Hoffman Estates continues to constrain the sublease market,” MBRE notes. “The potential for formerly single-tenant corporate campuses to enter the multi-tenant market weighs on Suburban Chicago.”

Few large leasing deals were signed and some of those were companies playing “musical chairs,” or just moving their offices within a submarket rather than expanding. For example, MBRE says, Advocate Health Care relocated 140,000-square-feet from Oak Brook to Downers Grove. This type of movement “has hindered the recovery.”

Industrial developers have finally, after a number of years, begun speculative construction in the suburbs. But MBRE says that while several large build-to-suit suburban office projects have begun, spec development remains a distant prospect. “With Class A direct vacancy at 20.7 percent, there is simply not enough demand to justify new multitenant product.”

Instant Insights /

Suburban Office Market Gains Ground

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