CHICAGO—The suburban office market suffered greatly during the recession, and although it still has an elevated vacancy rate compared to the city's CBD, partly due to a good number of obsolete space, in 2014 it outpaced downtown Chicago.
“The suburban office market absorbed more space than Chicago's downtown market in each quarter of 2014,” says John Picchiotti, chief operating officer, brokerage, for NAI Hiffman. The company has just published an analysis of the fourth quarter and found that “the suburbs absorbed nearly 590,000-square-feet compared to only 24,000-square-feet in the central business district.”
In fact, over the course of 2014, the suburbs absorbed almost 1.9-million-square-feet, nearly double the total for the suburbs in the previous year. Furthermore, the vacancy rate sank 132 bps during the year, down to 18.6%. This is still high, but it's a big change from four years ago when the rate hit its peak of 23.7%. The downtown only saw 44,000-square-feet absorbed in 2014.
“This demonstrates how tight the downtown market has become,” Picchiotti says, “as more than 1.1-million-square-feet was absorbed in 2013.”
The improving conditions in 2014 benefitted properties from several asset classes. The vacancy rate for class A properties sank 1.75 percentage points, according to Adam Johnson, vice president at NAI Hiffman, and the rate for class B went down 0.88%. “We should continue to see positive absorption among all asset classes.”
Although all five suburban office submarkets had positive absorption in the fourth quarter, the O'Hare area led the way with 203,000-square-feet, mostly due to the new headquarters for the American Academy of Orthopaedic Surgeons in Rosemont.
Perhaps the best illustration of the suburban turnaround is New York-based Apollo Global Management's $127 million fourth quarter purchase of the Kemper Lakes Business Center in suburban Long Grove. Philadelphia-based Equus Capital Partners Ltd. bought the four-building, 1.1-million-square-foot complex in 2005 for just $30 million after Kemper Insurance vacated it, but today it is over 90% occupied.
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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.
