CHICAGO—For years people have talked of turning Chicago into a "Silicon Prairie" meant to rival the nation's coastal tech hubs, and even though it still can't quite compete with the actual Silicon Valley, the city has recently emerged as a truly mature tech market. According to the 2015 Technology Office Outlook report from JLL, tech firms here attracted more than $412 million in venture capital funding in the past year and employed 104,869 workers in 2014.
And the region has a lot of attributes that experts say will continue to foster start-up activity for many years. For example, unlike some of the more famous tech markets, in Chicago less-established start-up firms have a lot of places to go where the rent is cheap.
"A lot of absorption has come from firms that start out in incubators like 1871 in the Merchandise Mart or in co-working spaces like WeWork," Christian Beaudoin, senior vice president and director of research at JLL, tells GlobeSt.com. As reported in GlobeSt.com, WeWork recently took over 105,000 square feet at 20 W. Kinzie St. in River North, a space largely occupied by Google, which has decided to establish itself in about 365,000 square feet of space in the new high tech office center of Fulton Market. "The new co-working spaces work out great for everyone," since the newbie firms can get by on short-term leases as they develop their products.
Perhaps just as important, the city's downtown has become the go-to place for millennial workers from around the Midwest. Both national and local suburban tech firms have responded to this desire for an urban lifestyle by opening offices in or around the CBD. "When I was a kid, people lived in the suburbs and came downtown to work, and now it has all changed," Beaudoin says.
Recently, Motorola Solutions decided to move from suburban Schaumburg to 150,000 square feet in 500 W. Monroe in the West Loop. And local firms Groupon and GrubHub signed lease renewals that expanded their spaces. The former took 380,000 square feet at 600 W. Chicago in River North and the latter 128,000 square feet at 111 W. Washington Blvd.
These kinds of numbers have made downtown landlords sit up and take notice, Beaudoin adds. "In the past, traditional owners of the big office properties have avoided low-credit tenants," a description that fits many of the city's smallish tech firms. "But now they all want to bring a millennial feel to their buildings," both to make them seem hipper and more attractive, but also to possibly land the next Groupon or GrubHub. That helps explain why new fitness centers, conference centers, rooftop decks and other gathering spaces have become common in office buildings first constructed in the 80s and 90s.
"Nationwide, high tech firms are also one of the few office users that are expanding," adds Julia Georgules, a JLL vice president and director of US Office Research, and this phenomenon is very apparent in Chicago. A good example is the contrast between Google, which will greatly expand its regional headquarters here, and other users, especially law firms, that will shrink their footprint once they move to the new office towers now rising along the Chicago River.
JLL researchers do caution that some costs are going up in Chicago. Office rents have increased 8.6% in the past two years, they note, and the surge in residential development has also caused a spike in apartment rents. Still, JLL still rates the region as affordable. The annual real estate costs per employee is $5,234, compared to $6,172 in Los Angeles, $12,362 in New York, $7,294 in Silicon Valley and $11,690 in San Francisco. "If you are a big company coming from either side of the country," Georgules says, "Chicago looks very affordable."
Beaudoin adds that the incredible growth seen in the past few years may be over. "We've got a good base set up, and I think we will continue to see growth, but at a more even pace."
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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.
