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Suburban Class A in Demand, but Class B Suffers

CHICAGO—Meanwhile, JLL also notes that local capital markets remain challenged.

By Brian J. Rogal | brianjrogal | | Updated on July 20, 2016

 

chi-Opus_MCMachineryRendering (5) Opus has begun developing this new headquarters for MC Machinery in Elk Grove Village, one of several build-to-suits underway in the suburbs.
CHICAGO—The suburban office market continues to separate into two groups with very different fortunes. Well-located class A properties have seen consistent demand, and tenants have expanding aggressively in properties with modern amenities, according to a JLL report on the second quarter. By contrast, class B properties are not faring well. The Northwest submarket’s vacancy rate for that class, for example, now exceeds 35%. A recent example of the former trend includes Verizon’s relocation from 125,000 square feet in 777 Big Timber Rd. in Elgin, to 160,000 square feet at 1701 Golf Rd. in Rolling Meadows. Similarly, MECU will upgrade their space and location with an upcoming move to 1501 E. Woodfield Rd.  However, while class B properties “struggle to attract tenants, new build-to-suit projects appear to be increasing in popularity,” JLL finds. Developers have about 1.1 million square feet of new space under construction in the suburbs, with 100% of the space pre-leased. The Opus Group recently began construction on a 175,000-square-foot headquarters for MC Machinery Systems , Inc. in Elk Grove Village. Furthermore, JLL says two other projects along the I-90 corridor are also underway. “These projects demonstrate that the suburbs remain attractive to many companies, but the existing inventory may not be able to sufficiently meet the needs of modern tenants.” JLL also notes that local capital markets remain challenged. Equus Group has a contract to purchase Mid America Plaza in Oak Brook for about $80 million, almost 19% lower than its 2007 sale price. “Going forward, some owners and investors may be wise to consider alternate uses for some of the large and obsolete properties that can be found across the region,” the firm says. “Demand for senior housing, daycare facilities, and community centers may outpace demand for office space in certain submarkets.”

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