CBD Looks Solid Again, and Suburbs Hold Their Own
The suburban migration downtown has slowed, but CBD activity was still high in the third quarter.
CHICAGO—Tech companies and co-working firms continue to fuel the downtown market as office activity remained high in the third quarter. The metro area’s vacancy rate dropped to 16.6%, a decline of 30 bps quarter-over-quarter and 120 bps year-over-year, according to a new report from NKF. Rental rates also grew, increasing to $29.75 per square foot from $29.12 in the second quarter. Downtown vacancy fell half a percentage point to 13.0%.
Facebook signed the largest lease of the quarter, agreeing to take more than 260,000 square feet at 151 N. Franklin. This brings the new trophy building to 91.8% leased. And WeWork also made headlines by signing leases to open two more locations. The co-working giant will open a 100,000-square-foot office at 515 N. State, which has a large vacant block, and take nearly 70,000 square feet of space at 330 N. Wabash.
“The trend of suburban companies moving downtown persisted through the third quarter, although at a less dramatic rate,” according to NKF. FTD Companies took 53,000 square feet at 1 N. Dearborn and McGraw Hill closed its Burr Ridge headquarters and took 50,000 square feet between 10 and 120 South Riverside. The falling vacancy rate propelled rents to a new record high of $36.62.
Many suburban firms, however, remain attached to their locations, especially the class A properties in Oak Brook, Downers Grove, or the submarket around O’Hare Airport. This helped push down the overall suburban vacancy rate another 30 bps to 21.7%. “This is the lowest vacancy has been since mid-2016, the result of 240,000 square feet absorbed after a series of moves,” according to NKF.
Recent actions include Paylocity expanding at Schaumburg Towers, Assertio Therapeutics moving into 100 South Saunders in Lake Forest, T-Mobile moving into 1411 Opus in Downers Grove and Elkay Manufacturing moving into the renovated 1333 Butterfield, also in Downers Grove.
Suburban landlords have found that spending a few million on renovations for the right class A properties can have a big impact. Stanton Road Capital purchased 1333 Butterfield last October when it was 48% leased, but the Elkay lease brought that up to 93%.
The strength of these class A locations helped boost overall rental rates $0.23 to $23.01. “These are the highest rents ever recorded in the suburbs and represent a 7.0% increase year-over-year,” NKF says.