The conversion of industrial properties into creative office projects is a profitable trend just beginning to grow in Chicago, according to a report from Transwestern.
Sterling Bay Company was the first to master the adaptive reuse model with two notable projects completed in Chicago.
In 2012, Sterling Bay purchased a Fulton Market cold storage warehouse for $12 million and then transformed it into Google's Midwest headquarters with an exit sale price of $303.6 million. That same year the company purchased a West Loop manufacturing facility for $10 million and later turned it into Hillshire Brands' headquarters for an exit sale price of $97.5 million.
Technology, advertising, media and information companies that are chasing younger talent and focusing on a Millennial workforce have led the demand in creative office space. Now, traditional office users and professional and business service sectors are picking up on the trend too.
These creative office spaces largely differ from traditional high-end buildings. They feature open floor plans, natural lighting, exposed brick and bow truss ceilings, common meeting areas, cafes and rec rooms.
"These buildings are rebranding what it means to be a Class-A building. Exposed brick and bike rooms are more important than a towering office with glass and marble," said Sandy McDonald, director of market research for Chicago at Transwestern.
In the past several years, existing Class-A office buildings have tried to become more competitive by pulling out their drop ceilings to expose the concrete and pipes or getting more modern furniture, McDonald said.
There are many proposed ideas coming down the pipeline for adaptive reuse, especially in the Fulton Market, West Loop and River West areas, McDonald said.
Chicago is approaching the peak in this trend, but there is still available space in the market for developers. However, timing is crucial.
"If you're a developer thinking about a project like this, you better get on the train right now because you could be priced out of the market within two years," McDonald said.
