CHICAGO—A region with an office vacancy rate over 20% might not seem the most likely target for developers. But The Alter Group has just decided to expand their Corridors development in suburban Downers Grove by an additional 600,000-square-feet across four buildings. Called Corridors North, the new development will begin rising as early as 2014 near the 299,792-square-foot Corridors I and Corridors II and the 217,500-square-foot Corridors III.
Although a second quarter analysis recently released by the Chicago office of Studley found that “availability remains above 20% in all [suburban] submarkets (except for O'Hare-19.6%) and leasing has been sluggish since the third quarter of last year,” The Alter Group remains committed, says Matthew A. Ward, senior vice president, who is leading the leasing team for the new development.
“We've looked at the amount of vacant space out there, of course,” he says. But amongst all that vacant space they only found “a very small amount of quality office space that a 2013-type tenant can use. It's mostly old real estate, with old systems, inferior HVAC and far fewer parking spaces than companies now require.”
Modern companies want to reduce the amount of space allocated per employee through the use of cube farms and more collaborative environments, he points out, and if they're in a suburban office park, that means they need more parking spaces per-square-foot than older properties typically provide. Corridors North will have five parking spaces for each 1,000-square-feet, whereas the older properties have less than four.
“We don't want to bring a lot of spec space to the market for obvious reasons,” says Ward, and the company is talking to potential users. “There is enormous demand in the area from sectors like tech, energy and healthcare but they need buildings that allow them to adapt quickly to the hairpin turns of this economy. Because we own this entire marquee site outright, we are able to offer our clients large contiguous blocks of space, flexible terms and expansion options across multiple buildings and sites.”
“Everything has been designed from a holistic perspective,” he adds. The developers will seek LEED certification, for example, and even plan how trees planted on the property will eventually shield the buildings from heat as they grow, making the campus an attractive place to work.
“We're just going to cut the fat out and offer companies extremely attractive pricing right out of the gate.” Ward calls $20-per-square-foot net “a good benchmark.”
Even the struggles of Corridors I and II don't faze Ward. That property, which the company sold nearly a decade ago, was then run by an owner encumbered by debt and without the capital needed to keep up the buildings and make them attractive to potential tenants. The occupancy rate sank to about 50%. “Basically, the properties were zombie properties,” says Ward.
But Transwestern recently paid $22.9 million for the five-story steel frame buildings, first completed in 1998 and 1999, and things are looking up. "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.”
Ward expects that the vacant block will disappear rather quickly. “Of all the space that's out there on the market, that's one of the few large spaces that someone will like.”
And the office market in the immediate area has begun to see more activity, especially among class A offices. Researchers from MB Real Estate say that, in the second quarter, the “East-West submarket continued its strong start to 2013 with nearly 100,000-square feet of net positive absorption. Class A buildings, after a disappointing finish to 2012, have now experienced 402,000-square-feet in 2013 net positive absorption.”
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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.
