CHICAGO— The office market in suburban Chicago saw vacancy increase in the second quarter, according to new research by Savills Studley, and tenants can expect to remain in control as landlords should continue to offer generous concession packages.
The overall availability rate hit 23.6%, an increase of 40 bps for the quarter, and class A space increased 70 bps to 25.3%. Furthermore, the rate could be set to increase. “Leasing activity lacks consistency across Suburban Chicago and cannot keep up with the continued space reductions by major employers,” the report notes.
"Continued corporate restructuring and a move towards a more efficient workplace are going to lead to a large supply of big block opportunities for suburban tenants to choose from," says Kevin McLennan, senior managing director, Savills Studley.
“Treading water” was a phrase used in the report to describe the suburban office market. Although volume totaled about 1.5-million-square-feet, nearly 20% more than the previous quarter, nearly one-third of the total was from AbbVie's 558,859-square-foot sublease in the North Corridor.
“In light of the market's excess available space, landlords still have little leverage,” the researchers note. “Suburban building owners are competing primarily through aggressive concession packages.”
During the quarter, overall asking rents in the suburbs did grow from $21.38-per-square-foot to $21.55, and class A rents also rose slightly to $24.07-per-square-foot. Still, they declined by more than 1.0% in the last year.
And the region's significant merger activity in the past year will soon open up big blocks of space. Due to its merger with Office Depot, for example, OfficeMax will soon move from Naperville to Florida. And “if Sysco merges with US Foods, this could create another large block of space in the O'Hare Area.” Therefore, the suburbs' “tenant favorable conditions are likely to prevail for the foreseeable future.”
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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.
