CHICAGO—It's not easy to find the bright spots in suburban Chicago's office market. Even in relatively good times, the vacancy rate can hover in the high-teens, and for several years, the rate has been well over 20%. A second quarter analysis recently released by the Chicago office of Studley, for example, found that “availability remains above 20% in all submarkets (except for O'Hare-19.6%) and leasing has been sluggish since the third quarter of last year.” Furthermore, “asking rents fell by 1.6% overall to $20.08 and class A rents dipped by 2.1% to $21.19 in the second quarter.”
“It's remained a bloodbath; particularly in the northwest and in the class B space,” says Joe Learner, executive vice president and a branch manager of Studley's Chicago office. “There is activity in many of the better class A buildings, but it's not really absorption. It's really just musical chairs” as companies move around in search of better deals. “Many times, they leave as much space as they're taking.” Capital Financial Corp., for example, gave a solid boost to the northwest last summer when they leased roughly 150,000-square-feet at the Atrium Corporate Center in Rolling Meadows, but in doing so, left a big space in Elmhurst.
But the northwest remains the toughest office market in the region. It still has the highest class A availability rate in the suburbs—30.9%. And although “leasing activity increased to 283,030-square-feet, a 48.5% quarterly uptick,” Studley found, “average class A asking rent posted a sharp 6.9% quarter-on-quarter decline to $19.07-per-square-foot, the lowest average asking rent since the 1990s.”
In addition to the western section of the East-West Corridor, or the area between I-355 and I-59, the northwest is “on the outer bounds of where people office. They are at a permanent structural disadvantage,” Learner says. Motorola's Libertyville campus, for example, is “going to have to be redeveloped into something that's not office space.”
One bright spot that has emerged in the suburbs is that investors have begun to show interest. Transwestern Investment Management, for example, recently paid $22.9 million, or about $77-per-square-foot, for Corridors I & II in Downers Grove, a property that has struggled with a high vacancy rate. “Given the low price,” Studley reported, “Transwestern should be able to invest in deferred building renovations and offer prospective tenants generous concessions and discounted rents.”
Furthermore, an affiliate of Canadian REIT Agellan Commercial recently paid $83.4 million for the former Lucent Technologies complex in Naperville. The complex was nearly 98% leased at the time, Studley noted. “These buildings have found new life,” Learner says.
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
