Not all companies are ditching the suburbs in exchange for skyline views of the city. The suburban office market still remains very attractive to various companies chasing office space.
In the East-West Corridor, the office sector makes up the majority of the activity around the area. According to Kelly Brown DeBouver, senior research manager at NAI Hiffman, class A properties located in the eastern portion of the corridor have experienced good market activity, particularly in Oak Brook, Oakbrook Terrace, Downers Grove and Westchester.
NAI Hiffman office market statistics show that as of Q4 2015, there was a total of 131,328 square feet of office space under construction in the corridor.
According to Savills-Studley Q4 2015 research, tenants leased a total of 1.9 million square feet in the corridor in 2015. Rents also increased by 4.6 percent, largely due to the higher-priced blocks of space at properties like 1 Tower Lane in Oakbrook Terrace, and 2701 Navistar Dr. in Lisle.
One of the corridor’s largest sales transactions in Q4 2015 was the joint venture of Hamilton Partners and Millbrook’s $44 million acquisition of Highland Pointe, a two-building, 367,108-square-foot property at 333 and 377 E. Butterfield Road in Lombard. The property will undergo a $2.5 million capital improvement program that includes replacing the elevators, renovating the lobbies, entryways and parking garage, and improving the landscape design.
Another notable investment sale during the quarter, according to NAI Hiffman, was Cornerstone RE Advisers’ acquisition of Highland Landmark V, a 250,545-square-foot, class A asset in Downers Grove, for $71.6 million. According to the firm, at $286 PSF, the property sold at the highest per square footage figure for a suburban office building in 2015.
Additionally, Navistar International began marketing 595,000 square feet in Lisle during the fourth quarter, hoping to attract a tenant or buyer for half of its 1.2 million-square-foot headquarters. The company announced that it’s also willing to vacate their entire campus.
With Navistar disposing of half of the campus, Jon Azulay, corporate managing director at Savills-Studley, said it’s competing with the ConAgra block of space and all the other space vacancies on that side of the market.
“Navistar and ConAgra are about half a mile apart from each other in the East-West Corridor,” he said. “The vacancy rate may change because of this.”
Azulay believes there will be a lot of activity in the corridor in 2016, and said it will be interesting to see if the capital markets/investment sales activity continues.
“Especially since it’s an election year, some tenants are trying to get things done now while others will wait and see who ends up in office and how it impacts their business,” he said.
The western portion of the corridor currently has plenty of office space availability, including: the former OfficeMax headquarters building of 354,000 square feet; ConAgra Foods’ 162,000 square feet of office space; and 130,000 square feet of SKF Group’s recently announced build-to-suit facility that it’s no longer occupying.
In its research report, NAI Hiffman predicts that due to a limited number of tenants currently requiring space greater than 100,000 square feet, there might be a marked increase in the vacancy rate, particularly within the western portion of the corridor.
Notable fourth quarter lease transactions in the corridor, according to NAI Hiffman research, include: Transdev’s lease renewal at Butterfield Center, 720 E. Butterfield Rd. in Lombard, for 27,111 square feet; Alloya Corporate Federal Credit Union’s new 25,930-square-foot lease at Park Lake Center, 184 Shuman Blvd., in Naperville; Napleton Group’s new 23,621-square-foot lease at One Oakbrook Terrace; and Pella Windows’ new 20,540-square-foot lease at 27545 Diehl Rd. in Warrenville.