Downtown and in the suburbs, new office space continues to draw tenants Matt Baker February 19, 2020 Share on Facebook Share on Twitter Share on LinkedIn Share via email There’s certainly been no cease fire on the horizon in the office amenity war, but the condition of the overall space itself is also vitally important. Whether in the heart of the CBD or out in the suburbs, office users continue to show a proclivity for new or renovated spaces. According to the latest Cawley Chicago data, compiling statistics for leases, sales and projects under construction in the Chicago metro, it’s clear that tenants continue to be drawn to high-end office spaces in the CBD. Cawley also compared the downtown Chicago office submarket with those in suburban Schaumburg and the eastern East-West Corridor to get an idea of how the markets perform in relation to one another. Uber’s 463,000 commitment at the Old Post Office—brokered by CBRE, with The Telos Group representing the building owner, 601W Cos.—was the largest new lease of the year. The rideshare firm was one of the earliest tenants to sign into the 2.8-million-square-foot behemoth, which is undergoing an $800 million renovation. The largest transaction, however, was United’s renewal of 816,300 feet at the Willis Tower, with plans for refurbishing their space in phases and the addition of a 30,000-square-foot cafeteria and amenity deck. JLL brokered that deal for United and The Telos Group represented the Blackstone Group, which is nearing the completion of a $500 million capital improvement program for the iconic building. “Heading into 2020, we continue to see solid market leasing fundamentals mainly in the Class A and higher-end Class B asset classes,” said Rawly Lantz, principal at Cawley Chicago. “These underlying fundaments are especially true within those buildings who have recent renovations and more modern updates.” In the past 12 months, there were 5 million square feet of new space delivered to the market. Chicago’s office sector had a 12.3 percent vacancy rate in the fourth quarter, up slightly from the 12.0 percent vacancy rate in Q3 2019. Over the past year, according to Cawley Chicago figures, office rents in the metro inched up by 0.9 percent. There are another 7,140,000 square feet of new office space now under construction, 36.3 percent of which was pre-leased as of Q4 2019. These projects include BMO Tower (co-developed by Riverside Investment & Development and Convexity Properties) and Bank of America Tower (co-developed by Riverside and the Howard Hughes Corporation). Combined, these developments will add over 3 million square feet along the Chicago River. Development hasn’t slowed down in Fulton Market, either. Shapack Partners and Focus are nearing completion of 167 N. Green Street, a 17-story, 645,000-square-foot ground-up project. 800 W. Fulton Street, a joint venture between Thor Equities and QuadReal, isn’t slated to open until next spring, but Aspen Dental Management has committed to 197,000 of the building’s 480,490 square feet. The two suburban submarkets that Cawley Chicago highlighted in their report, the eastern portion of the East-West corridor and Schaumburg, saw their absorption dip into the red last year, with -645,000 and -502,000 square feet of net absorption, respectively. Rents shrank slightly in the Schaumburg area by -0.3 percent, though the eastern East-West corridor managed to eke out positive rent growth of 1.5 percent in the 12 months ending in Q4 2019. “For building owners, there is a clearly a positive rental rate advantage for those suburban markets closer to interstate infrastructure, train system and the city. We continue to see small and large companies alike wanting and needing a suburban presence but looking for the amenities they might see within the downtown Chicago market,” Lantz said. “This is true both within their leased premises, within the building common areas and in nearby restaurant and retail developments.” The only commercial office building under construction in the East-West corridor is a 135,000-square-foot build-to-suit for the expanding Hub Group. However, Hines has approval to begin work on Oak Brook Commons—a mixed-use development on a former McDonald’s office site in Oak Brook—that will include more than 200,000 square feet of office space in addition to retail, multifamily and hotel. Antunovich Associates is collaborating with Hines to develop the master plan for Oak Brook Commons. The 17.5-acre project is betting that amenities inside and outside will be a draw to office tenants; the plan calls for 250 apartments, 104 condos, a 252-room hotel, three restaurants, retail and park space, in addition to office space.