CHICAGO—Corporate moves from the suburbs into the CBD typically generate headlines, but all that attention may be obscuring some of the good news happening outside the urban core. It's true that many suburban submarkets have elevated rates of vacancy, but some areas, such as the O'Hare submarket, have recovered quite well from the recession, and many tenants have begun expanding. That energy is most noticeable within the best class A properties, and developers say suburban buildings that they can bring up to those standards have a bright future.
“Very few people have focused on the numbers,” Michael Klein, co-founder of GlenStar Properties, tells GlobeSt.com. Last year, for example, there was nearly 4.5 million square feet of absorption in the suburban market, versus about 4.1 million in the city, according to CBRE. And in the previous four years, the gap was wider. In total, from 2012 through the end of 2015, office users in the suburbs absorbed nearly 11 million square feet, and city users absorbed nearly 4.7 million.
“Both regions can be healthy; it's not either/or,” he adds, but “it's surprising how few people talk about the suburbs.” GlenStar has recently completed significant projects in both the suburbs and the CBD, and “over the last four years, we've seen a lot of suburban companies that have grown, and a lot of new companies coming in.”
That was a huge benefit when GlenStar, along with Walton Street Capital LLC, acquired Continental Towers in 2013. At the time, after several years with an under-capitalized owner, the occupancy rate for the 911,341 square foot project in suburban Rolling Meadows had sunk to less than 50%. But after GlenStar finished a two-phase renovation effort, occupancy shot up to 95%, “and our rents continue to climb.”
Thethree-tower complex now includes a state-of-the art on-site cafeteria, a health and wellness center and more conference space. GlenStar also updated the lobbies, renovated tenant corridors and washrooms as well as upgraded its elevators.
The owners of other key suburban properties have had the same experience. When Kraft Heinz left its Northfield campus in 2016 for space in Chicago's Aon Center, many thought this would leave a big hole in the north suburban office market. But Medline Industries rather quickly agreed to fill up that space.
Klein says Kraft Heinz had kept its Northfield headquarters in great condition, so he was not surprised another well-known firm decided to take it. He also was not surprised when Caterpillar decided to move its headquarters from Peoria to the Corporate 500 complex in Deerfield, rather than a space in the CBD. After all, Komatsu America Corp., the US subsidiary of Komatsu Ltd.and a direct competitor of Caterpillar,recently renewed its 105,437 square foot lease at Continental Towers.
Deals like that helped convince GlenStar to buy even more suburban properties. It just acquired Schaumburg Corporate Center, a one million square foot complex, for about $70 million. The complex had not changed hands since it was developed in the 1980s. And the company has already launched an approximately $30 million renovation program to upgrade it to a true class A asset.
“There are some companies that definitely need to be in the city, but there are others that need to be in the suburbs because that's where their labor pool lives,” says Klein. “If the suburbs are dead, then how did we lease 400,000 square feet at Continental Towers in just two-and-a-half years? There has been a lot of great stuff going on downtown, but the suburbs are stronger than people realize.”
CHICAGO—Corporate moves from the suburbs into the CBD typically generate headlines, but all that attention may be obscuring some of the good news happening outside the urban core. It's true that many suburban submarkets have elevated rates of vacancy, but some areas, such as the O'Hare submarket, have recovered quite well from the recession, and many tenants have begun expanding. That energy is most noticeable within the best class A properties, and developers say suburban buildings that they can bring up to those standards have a bright future.
“Very few people have focused on the numbers,” Michael Klein, co-founder of GlenStar Properties, tells GlobeSt.com. Last year, for example, there was nearly 4.5 million square feet of absorption in the suburban market, versus about 4.1 million in the city, according to CBRE. And in the previous four years, the gap was wider. In total, from 2012 through the end of 2015, office users in the suburbs absorbed nearly 11 million square feet, and city users absorbed nearly 4.7 million.
“Both regions can be healthy; it's not either/or,” he adds, but “it's surprising how few people talk about the suburbs.” GlenStar has recently completed significant projects in both the suburbs and the CBD, and “over the last four years, we've seen a lot of suburban companies that have grown, and a lot of new companies coming in.”
That was a huge benefit when GlenStar, along with Walton Street Capital LLC, acquired Continental Towers in 2013. At the time, after several years with an under-capitalized owner, the occupancy rate for the 911,341 square foot project in suburban Rolling Meadows had sunk to less than 50%. But after GlenStar finished a two-phase renovation effort, occupancy shot up to 95%, “and our rents continue to climb.”
Thethree-tower complex now includes a state-of-the art on-site cafeteria, a health and wellness center and more conference space. GlenStar also updated the lobbies, renovated tenant corridors and washrooms as well as upgraded its elevators.
The owners of other key suburban properties have had the same experience. When Kraft Heinz left its Northfield campus in 2016 for space in Chicago's Aon Center, many thought this would leave a big hole in the north suburban office market. But Medline Industries rather quickly agreed to fill up that space.
Klein says Kraft Heinz had kept its Northfield headquarters in great condition, so he was not surprised another well-known firm decided to take it. He also was not surprised when
Deals like that helped convince GlenStar to buy even more suburban properties. It just acquired Schaumburg Corporate Center, a one million square foot complex, for about $70 million. The complex had not changed hands since it was developed in the 1980s. And the company has already launched an approximately $30 million renovation program to upgrade it to a true class A asset.
“There are some companies that definitely need to be in the city, but there are others that need to be in the suburbs because that's where their labor pool lives,” says Klein. “If the suburbs are dead, then how did we lease 400,000 square feet at Continental Towers in just two-and-a-half years? There has been a lot of great stuff going on downtown, but the suburbs are stronger than people realize.”
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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.
