CHICAGO—As reported in GlobeSt.com, the office market in downtown Chicago hit a rough patch in the first quarter, and according to MBRE, the suburbs also experienced a bit of a letdown. Although the suburbs saw 1.3 million square feet of positive absorption in 2014, in the first three months of this year the market recorded just 117,766 square feet of absorption. Still, the vacancy rate shrank slightly to 20.38% from 20.54% at the end of last year. And rental rates in some areas are climbing to heights not seen in years.
In fact, “the North, O'Hare and Northwest submarkets each experienced a double digit rate of rental growth year-over-year with the North submarket commanding 24.1% higher asking rates than just four quarters previous,” MBRE says.
The North suburban submarket at 18.01% is the only one with a vacancy rate below 20%. All that empty space has so far discouraged developers launching new multitenant office buildings. But many have concentrated on build-to-suits in order “to keep construction going in the face of these challenges.”
Despite the marginal growth, MBRE did find reasons for optimism. For example, “both the East-West Corridor and North submarkets are seeing a strong retention rate for large tenants with multiple long-term renewals.”
Landlords in the North submarket recently signed some of the biggest deals in the Chicago region so far this year. Both pharmaceutical spinoff Baxalta and software firm CDW signed new deals in Bannockburn and Lincolnshire respectively for over 200,000 square feet. The submarket also saw one of the largest renewals of the quarter with Generation Brands recommitting and expanding to 249,000 square feet at 7300 N. Linder Ave. in Skokie. Such large long-term commitments “brings a greater sense of optimism to a market which had been all but dismissed just a few quarters ago,” MBRE says.
Furthermore, the firm believes that the migration of companies from the suburbs to the CBD seems to have subsided. Many users from the suburbs have instead decided to establish satellite offices downtown, rather than moving the bulk of their space. However, these satellites could in time convince suburban users to make the final leap into the CBD.
“It remains to be seen whether downtown migration escalates again with renewed force following this lull, or whether incremental growth continues to push vacancy back to reasonable levels,” MBRE says.
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
