Suburban Office Market Sees Increased Activity

CHICAGO—The Downtown Chicago office market continues to soar, but some suburban areas are also benefitting as job growth fuels demand. In fact, although portions of the suburbs are improving quicker than others, overall suburban vacancy declined in the first half of 2018.

Leasing volume in the suburban office market improved in the second quarter of 2018, as vacancy dropped to 19.9% from 20.4% in the first quarter, according to a new report out from Colliers International. It has also showed an improvement from mid-year 2017’s overall vacancy rate of 20.8%. The first half of 2018 ended with 43,889 square feet of positive year-to-date net absorption, compared to negative 196,808 square feet of negative net absorption reported during the first half of 2017.

Tenants signed 12 new lease transactions for greater than 25,000 square feet in the Chicago suburban office market in first half of 2018, according to the firm’s research, along with 232,000 square feet of new leases for 50,000 square feet or greater.

The Oak Brook market continues to lead the suburban region. It showed the greatest improvement over the last twelve months with a 1.9% decrease, Colliers says, while the Northwest market remains the weakest submarket, ending the second quarter with a 22.9% vacancy rate. However, that’s still an improvement compared to mid-year 2017’s rate of 23.8%.

Class A offices have seen the most demand. Vacancy for these properties dropped to 19.9% in the first half of 2018, down from 20.4% in the first quarter and 20.8% during the same time period of 2017.  But it’s the trophy buildings that get the most attention. These high quality, “true” class A assets ended the second quarter with a vacancy rate of just 16.9%.

There are currently 49 properties in the suburban office market that can accommodate tenants that need 100,000 square feet or more, with 37 of them being class A. However, when considering high quality, true class A properties, there are only 12 that can accommodate a 100,000 square foot user, with only a few available large blocks of space in the hot O’Hare and Oak Brook markets.

The average class A gross asking rent ended the quarter at $29.71 per square foot gross, compared to $29.56 in the first quarter of 2018 and $29.18 at mid-year 2017. The average gross asking rent for all classes in Suburban Chicago also increased, rising to $21.03 per square foot gross compared to $20.99 at the end of the first quarter and $20.77 mid -year 2017.