Chicago Office Demand Benefits from Suburban Migration and Tech Expansion

CHICAGO, IL—Strong office demand in Chicago is driven by healthy volumes of suburban migration into the downtown area coupled with rising interest in Chicago from technology firms, according to experts at Jones Lang LaSalle.

Market, River North, and Central Loop are neighborhoods “where we’re seeing incredible growth,” says Scott Homa, senior director, office research, author of JLL’s latest quarterly report on office demand.

“You have a handful of banks and law firms also in the market reevaluating their space, and thinking about their future space as well,” says Hailey Harrington, research manager-Chicago. “We will see a lot more leases from them. It’s kind of tapered growth and not really expanding so much.”

One strong sector in Chicago in the third quarter has been interest in co-working space, according to the JLL research. Leasing volumes larger than 20,000 square feet reached 27 million square feet nationally in the third quarter, continuing positive growth.

While co-working has clocked year-to-date transactions approaching 13 million square feet nationally, it’s not completely replacing traditional office space, Homa says.

“That’s a huge influence on the market, although I wouldn’t say it’s companies getting rid of their space and choosing coworking,” he says. “It’s including coworking as a portion of their strategy.”

Redevelopment of older office properties with new, more efficient open floor plans is essentially mandatory, says Homa.

“Even the most traditional companies are seeking more progressive and collaborative space,” he says. “It crosses all industries, and maybe legal is one of the slower to migrate that way, because they still have private offices, and some have still have traditional offices, but even those law firms are looking at how to use the space more efficiently with more collaborative spaces and informal meeting places.”

Harrington notes that repurposing of former office space is taking the pressure off pricing.

“The one thing that also benefited the downtown market is that we’ve seen older class office buildings get converted to higher and best use, so hotels, multi-family apartments,” she says. “That’s really benefited the office market just taking out supply that is not the best from a tenant standpoint, so it pushes those companies into different buildings.”

The whole meaning of class A office space is being redefined, says JLL’s Christian Beaudoin, managing director, research & strategy.

“I think we’re seeing the whole industry kind of shift a little bit at what used to be considered class A,” he says. “You can have an older product, a building like The National, which just sold and is now having strong leasing activity is different than that. It’s a classic building but it also has an incredible food hall in the ground floor, and it has interesting tenant amenities that are a little bit unique, and have got character in the building. So that’s an example of something that you wouldn’t call traditional trophy class.”

A slowdown in the tech sector might have an impact in Chicago, but it’s likely to be less intense than in Silicon Valley, Harrington says.

“The benefit to Chicago is that it’s cheaper than at the big tech companies’ home base employment,” she says. “It may slow down, but not as drastically as it does in the Bay Area.”

UPDATED, 11/27/2018, 8:21 a.m.: An earlier version of this story incorrectly suggested that coworking leasing volumes had reached 27 million square feet in Chicago. The statistic was actually a national figure.