CHICAGO—There was quite a bit of friendly competition between suburban and urban office brokers at yesterday's 14th Annual Commercial Real Estate Forecast Conference. Sponsored by the Real Estate Publishing Group, more than 1,000 conference participants gathered at the Hyatt Regency Chicago to hear what the coming year could bring for the metropolitan area's commercial real estate. And with much of the talk centered on the recent migration of companies from the suburbs into the CBD, suburban advocates felt compelled to speak up for their region.
"The suburbs don't have an absorption problem, the suburbs have a perception problem," Dave Trumpy of GlenStar Properties told a morning panel. In the past few years, his company has taken over recession-hit office suburban properties such as Continental Towers in Rolling Meadows and brought them back to life. However, in his experience, "if any big deal happens in the 'burbs, you won't hear about it."
Trumpy pointed to the recent decision by Verizon Wireless to move its Elgin, IL-based Care Center to Continental Towers. As reported in GlobeSt.com, that move pushed the occupancy rate for the trio of buildings up over 90%, a remarkable improvement from when GlenStar bought the complex in 2013, when tenants occupied less than 50% of its 911,341 square feet. Those success stories are not often told, but when it comes to major corporations with headquarters in the suburbs, "some of them will grab 30,000 or 40,000 square feet downtown and everyone will write about it."
Part of the suburbs' perception problem is the vast amount of obsolete class B and C office space, he added. While developers frequently repurpose urban B and C product into loft-style offices, in the suburbs "they sit there forever," dragging down the the overall suburban occupancy rate and masking other progress. In 2015, for example, the city office market saw 1.4 million square feet of absorption, but the suburbs had 2.2 million square feet. And the class A vacancy rate for the suburbs was a respectable 13.9%.
One of the recent headline migrations from the suburbs to the city was by Sara Lee spinoff Hillshire Brands Co., which left Hamilton Partners' Esplanade at Locust Point in Downers Grove in May 2013. But Trumpy considers what eventually happened a "huge success for Hamilton Partners," since all of that vacated space was leased by a group of attractive tenants with rents around $18 to $19.50 net.
Trumpy acknowleges that many modern office users are putting greater emphasis on securing space close to transit, and while that fact definitely benefits downtown landlords, many in the suburban markets, especially O'Hare and Evanston, will also profit. Presidents Plaza, which sits on the Blue Line near the airport, is another of GlenStar's suburban properties that had a high vacancy rate when the company acquired it, but today it is up around 90%, and the company has several deals in the works that will soon bring it up to 93% or 94%, he says. In 2016, "I think you are going to see a surge in activity and rental rates in the O'Hare market."
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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.
