A flurry of new development is hitting the Chicago office market, with much of it focused on turning outdated Class-C buildings into apartments, hotels, retail and student housing.
Developers are on pace to complete nearly 3 million square feet of office space in the Chicago market, the majority of which is slated for the city. This will top last year’s high of 2.9 million square feet, according to a report from Marcus & Millichap. The area west of the river is particularly active with a 54-story office tower at 444 W. Lake St. that totals 1.2 million square feet. Employment rates are also up 1.5 percent, with roughly 27,000 of those jobs based in office spaces.
The new, top-shelf office space available is pushing along a flight to quality, said Avison Young tenant rep Mark Robbins. Tenants who can afford it and whose images depend on it, move into trophy office towers, leaving space for others to upgrade. As an example of this, Robbins noted DLA Piper’s move to River Point at 444 W. Lake St. from an office at 203 N. LaSalle which they had been at for about 30 years.
“All the new product creates shadow space. All of a sudden, owners of buildings that are 12 years old are motivated to find tenants,” Robbins said.
Inevitably, that puts some vintage office spaces at the bottom of the food chain. While they might not be attractive office spaces anymore, they are ideal for retail or apartment conversions. Now developers have a captive audience and are able to push redevelopment of these spaces.
An example of this can be seen at The National building at 125 S. Clark St., Robbins said. Revival Food Hall opened last August in the building, which previously served as headquarters for Chicago Public Schools. The old office was revamped into a 24,000-square-foot space that now boasts 15 fast-casual food stalls plus a coffee and cocktail bar.
The conversions are partly fueled by large corporations making moves from the suburbs into the city, according to John Slivka, who works in the investment properties group at CBRE.
“Much of it is related to the younger workforce. They want to be in the city. That’s driving demand for these vintage buildings. People want to live where they work,” Slivka said.
Several transactions that Slivka brokered were turned from outdated office building into apartments, retail and hotels.
Slivka was involved with the former Brock & Rankin building at 619 S. LaSalle that was transformed into Library Lofts, a 106-unit apartment building, by Marc Realty Residential. The South Loop building offers tenants a modern fitness center, an outdoor deck with lounge chairs and grills, a club room for entertaining and a bike room.
Another notable property Slivka worked on was the redevelopment of the Oriental Theater building at 32 West Randolph by the Murphy Development Group. The 237,200-square-foot office space above the theater was converted into a 199-room Cambria suites hotel and is expected to open later this year.
Chicago is shifting into an environment that also reflects the wants of younger employees and students. The 17-story Arc at Old Colony developed by CA Student Living was a 124-year-old office tower at 37 W. Van Buren that is now 137 furnished apartments. College students get access to a 24-hour fitness center, a communal and individual study rooms with free printing, a rooftop lounge with a fire pit and gas grills, coffee vending machines and a dry-cleaning service. Some units even come with a 50-inch flat screen TV, in-unit washer and dryer and modern furniture.
The Gibbons and Stegar buildings, some of the oldest in the Loop, at 20 and 28 E. Jackson Blvd., were also developed by CA Student Living. In 2014 the company opened Infinite Chicago with 124 apartments with luxury, student-focused amenities similar to those at Arc at Old Colony.
The office market is vibrant and looking to the future, Slivka predicts strong fundamentals. As the culture of live-work-play grows, so will the activity.