Suburban Chicago Tenants Flock to Class A Office Properties

CHICAGO—Office leasing activity in the Chicago suburbs once again exceeded 1 million square feet region-wide in the third quarter as tenants continued to lease space at centrally located properties that offer modern amenities.

Colliers International in its third quarter report on the suburban Chicago office market states that the overall suburban Chicago vacancy rate rose to 21.8% as compared to 21.5% in the second quarter. Leasing activity, including new leases and lease expansions., in the third quarter stood at 1.1 million square feet, down from 1.3 million square feet in the second quarter.

Class A vacancy in the suburban region remained flat at 22.3%, however the vacancy rate in high quality, trophy assets in the suburban office market ended the third quarter at 16.6%, down 170 basis points from the same time period in 2017.

“Despite the rise in vacancy, activity remains strong in properties that are centrally located and offer modern amenities,” Colliers states.

Seven new leases or lease expansions of 15,000 square feet or larger were signed throughout the suburbs during the third quarter of 2019. In the second quarter, there were 17 new leases or lease expansions of 15,000 square feet or larger signed.

Colliers reports that six suburban office assets totaling 1.1 million square feet changed hands in the third quarter of 2019 and three others are currently under contract. In its second quarter report, Colliers reported that there were six assets that sold during that three-month period and four others were under contract.

Looking forward, Colliers expects office landlords to continue to improve “trophy” Class A assets with modern design build-outs and new amenities in order to attract tenants.

One possible headwind for the market centers on the impacts of Cook County’s tax increases on the O’Hare, Northwest and North markets.

The brokerage firm expects asking rates in high-quality Class A properties will exceed previous historical highs as tenants continue to show the willingness to pay higher rents in exchange for higher concessions.

The office vacancy rate in the five Chicago submarkets for the third quarter were: O’Hare, 14.3%; Northwest, 29.8%; North, 20.1%; Lisle-Naperville, 20.4% and Oak Brook, 18.6%.

The vacancy rates at the end of the second quarter of 2019 for the five suburban office markets were: O’Hare, 13.3%; Northwest, 29.2%; North, 21.2%; Lisle-Naperville, 20.1% and Oak Brook, 17.1%.