CHICAGO—The suburban Chicago office market has long suffered from a high vacancy rate, and in the first quarter, that number climbed to 21.2%, up from 20.3% at the end of 2013, largely due to the decisions of several corporations to move downtown and the decisions of others to shrink their footprints, according to Colliers, which recently published its overview of the first quarter.
“While there continues to be improvement in certain pockets of the market, tenants in the suburbs are still acting conservatively,” the researchers note. Too few are ready to make the long-term commitments needed to create a healthy market, and many suburban landlords are still offering aggressive incentive packages. “Tenants are taking advantage of current concessions and finding that they can move into higher-end, class A space without significantly increasing their total operating cost. However, these prominent class A options are beginning to diminish.”
Ariel Bentata, the managing partner of Beacon Investment Properties, LLC, which recently completed the acquisition of a 12-story, class A office tower in north suburban Buffalo Grove, tells GlobeSt.com that “tenants want efficient floor plates, walkable amenities and good parking ratios. If you can provide that, some tenants are taking advantage of today's low rates and doing early renewals and locking in for a long term.” Furthermore, “with the general economy expanding steadily and virtually no new construction, conditions should continue to improve for landlords,” especially if they own well located class A properties with the desired features.
Looming above all other developments in the past quarter was the migration of Motorola from one-million-square-feet in north suburban Libertyville to four floors with 600,000-square-feet in the Merchandise Mart downtown. In addition, Capital One vacated over 200,000-square-feet at Woodland Falls in Lake County's Mettawa.
“While the Northwest market showed the most significant improvement, the Lisle-Naperville market continued to have the lowest overall vacancy rate, ending the first quarter at 18.6%,” the report notes. The highest vacancy rate, at 21.8%, was in the north suburban submarket, which includes the towns of Libertyville and Mettawa.
The northwest suburbs and the Lisle-Naperville market were the only suburban areas to see positive net absorption in the first quarter. Overall net absorption was negative 1,237,378-square-feet, compared to positive 224,678-square-feet in the last quarter of 2013.
However, Colliers' analysts expect that the year's grim beginning will brighten a bit in the second quarter. A lot of suburban deals were signed late in 2013 that will have tenants moving in during the second quarter. “In addition, brokers are reporting an increase in activity throughout the suburbs with tenants entering the market and viewing space,” the researchers note.
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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.
