Chicago’s office market has garnered considerable focus in recent months, but does the “doom and gloom” sentiment surrounding the downtown market extend to the suburbs, as well?
Recent reports suggest that the suburbs are performing comparatively better than the city. Despite ongoing economic uncertainty and weakened demand in the suburban office market at the beginning of 2023, a new report by Savills found there were encouraging signs of improvement in the region during Q1 2023.
The leasing of 1.5 million square feet during this period marked the second-highest performance in Suburban Chicago since the beginning of the COVID-19 pandemic, suggesting occupiers’ willingness to secure office space—but that’s not the only sign.
Class-A buildings continue to be a lifeline for the market, with the majority of the largest transactions in the first quarter taking place among this asset class, as companies aimed to attract employees back to the office by opting for higher-quality spaces. Overall availability dipped by 80 basis points over the past year, and, in contrast to the downtown market, the suburban market experienced a decrease in sublease options, as many of the largest spaces previously on the market have reached the end of their lease terms.
O’Hare (27.9%) and the East-West Corridor (29%) were reported to have the lowest availability rates of the suburban markets, based on the report, but it is the North Corridor that has exhibited the greatest improvement over the past year, with availability declining 220 basis points to 29.7%, marking the submarket’s lowest rate since 2019. The two largest suburban leases in Q1 2023 also occurred here, with CF Industries relocating to 78,000 square feet in Northbrook, and Quill occupying 62,000 square feet in its move within Lincolnshire.
Savills also reported that asking rents were up 4.8% from a year ago, to $26.69 per square foot. Although some landlords have raised their asking rents slightly, a significant portion of the increase can be attributed to higher taxes and operating expenses—even with these higher rents, companies often ended up paying lower net affective rents and received generous concession packages, including benefits like flexibility in lease terms, rent reduction or forgiveness, and improvement allowances.
