McKinney: Expect a New Tower by 2016

CHICAGO-Increased activity has been the mantra used to describe the past two quarters in the downtown office market, even though fundamentals such as job growth has lagged what would be needed for market improvement. However, industry executives at JF McKinney’s recent Economic and Real Estate Forum in the downtown said they are “cautiously optimistic,” and, because of increased competition for large blocks, are willing to even consider new office construction plans.

Jack McKinney, president and founder of the self-named local firm, tells GlobeSt.com after his program that office developers, owners and brokers have resigned themselves that the market is not going to get better quickly. The downtown office market is currently at almost 15%.

“Not surprisingly, we think it will be a slow and cautious recovery. We see improvement, but then you consider how the state is in poor financial shape, we don’t know if there’s going to be an open city hall like there was with the last mayor, and if oil prices go back to more than $100 a barrel, is that going to take the wind out of the sails of a struggling economy?” McKinney says.

However, he says he’s very confident that a major company, such as Hines, could get a plan together to put up a new office tower within the next five years. Hines was supposed to develop a 1.2-million-square-foot tower at 444 W. Lake St., with William Blair as the anchor, in 2008, but the loan failed and the leases unwound. However, McKinney says he wouldn’t be surprised to see another building proposed at that site, though possibly smaller than intended. McKinney’s firm was the assigned leasing agent for the failed tower.

If there was another merger like United and Continental Airlines, it could happen in three years, McKinney says, as a firm would need a large block of Class A space for a new home. A lack of new construction downtown has created competition.“There isn’t going to be a lot of big blocks competing for space,” McKinney says. “There’s about 12 blocks of space with more than 100,000 square feet, and seven of those 12 have deals in place. Of course, there will be more large blocks coming available in 2013-14.”

Tenants shopping for large space include Wells Fargo, US Bank and Marsh & McLennan. It will only take two tenants looking for about 250,000 square feet each, or one large tenant of that size, to put plans for a new building easily on the map, McKinney says. “Most companies today, when they move, they’re taking about 20% less space than they had. That cost savings is more than enough to justify the cost to move into a new building,” he says.