CHICAGO—Tenants continue to flock toward the hot West Loop and Near North markets, according to a third quarter analysis recently released by the Chicago office of Studley, but demand in other submarkets in the CBD appears to have stagnated. Class A availability in the Near North sank 0.9% to 14.4% and declined 0.8% to 16.2% in the West Loop area. Overall availability in the CBD has been declining since the fourth quarter of 2010, Studley researchers note, but while the West Loop, East Loop and Near North submarkets have seen the amount of available class A space decline by 2.5-million-square-feet, the amount of similar space in the rest of the downtown, including the Michigan Ave., LaSalle St. and Central Loop submarkets, has increased by 700,000-square-feet.
Furthermore, asking rents in the Near North's non-class A buildings, such as the older loft-style buildings common in the neighborhood and strongly-preferred by tech companies, have risen 19% in the last three years, but only 4.2% in the entire CBD.
“A fair amount of the leasing in Downtown Chicago during the last two to three years has been due to companies relocating from the suburbs,” Studley reports. For example, as reported in GlobeSt.com, in August AT&T announced it was moving 500 employees from its offices in Hoffman Estates to 225 W. Randolph St.
And many firms within the CBD have been moving from the Michigan Ave. and Central Loop submarkets, another factor causing the tightening of the off-Loop areas. Associated Bank, for example, recently consolidated five offices in four buildings including 190 N. LaSalle St., the Prudential Plaza, suburban Deerfield and two spaces in the Aon Center at 200 E. Randolph St., into new space at 525 W. Monroe in the West Loop.
“Law firms, banks and a wide range of professional/business services have generally been reducing their occupancy as they move from older Central Loop and Michigan Ave. properties to more recently constructed or updated West Loop space. This downsizing and drive for efficiency has become commonplace among Chicago's biggest tenants,” according to Studley.
DLA Piper, one of the city's best-known law firms, has committed to leasing just 175,000-square-feet in Hines' 444 W. Lake St., considerably less than the 260,000-square-feet it has at 203 N. LaSalle St. This downsizing phenomenon is changing the character of the CBD, especially since it is coupled with expansions on the part of start-ups and tech-oriented companies.
“GoHealth's 93,755-square-foot sublet at the Merchandise Mart is a good example of the rapid expansion by tech firms in River North,” according to Studley. “This will be GoHealth's fourth Downtown location – it currently leases 76,000-square-feet including a 36,000-square-foot call center at 111 N. Canal St. in the West Loop and about 40,000-square-feet in 214 & 222 W. Huron St.” The high-tech health care company will further expand as it adds hundreds of employees to handle the implementation of the Affordable Care Act.
Many landlords have begun to cater to this high-tech crowd, and, Studley notes, tech expansion seems more secure than the dotcom bubble. "While tech companies will come and go, it is more likely that there will be another one waiting to backfill the space.”
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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.
