"What we're seeing in the third quarter is a decrease in additional sublease space being added to the market, which speaks to the bottoming out of cost-cutting and disposition from a tenants standpoint," Sean Reynolds, EVP with Jones Lang LaSalle, tells GlobeSt.com. "We're still seeing larger chunks of quality corporate space coming on, but we don't see any major increase in additional sublease in the next quarter or two." Reynolds says this change will have a significant impact on the market's overall supply.
"From a demand side, we're seeing tenants, that may have had a project on hold for three or four quarters, really bringing those projects back to the surface and look forward to taking advantage of the still very favorable tenants' market," Reynolds says. "People are seeing that the window of opportunity is transitioning away from an extremely favorable tenant market. Between now and 18 to 24 months out, a lot of projects are getting restarted."
The suburbs have faired far worse in this downturn than the city of Chicago, which has a total vacancy rate of 14.8%, according to Transwestern's Q3 office market report. Some say this disparity will continue to hurt the suburbs moving forward, and that real estate recovery will come to the city more quickly than the suburbs.
"There's a continued trend of people going from the suburbs to the city, even though the suburbs are less expensive because of city incentives and the younger work force," Tamara Kos, EVP for Transwestern's Midwest region, tells GlobeSt.com. "The central business district may prosper, to the detriment of the suburbs. I think the suburbs are going to suffer a little longer and have a much slower snapback than the CBD."
Within the suburbs, Reynolds points to the north submarket, which has seen 1 million square feet of negative absorption year to date, and the northwest submarket, which has seen 500,000 square feet of negative absorption, as two areas that have been harder hit than others. "All of the submarkets have been hit over the past quarters, but certain submarkets have felt more pain in this most recent quarter," Reynolds says.
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