Some Chicago suburbs shedding office tenants Matt Baker October 16, 2019 Share on Facebook Share on Twitter Share on LinkedIn Share via email The overall suburban Chicago office market comprises nearly 110 million square feet of inventory. But as the suburbs lost more than a million square feet of absorption year-to-date, which areas and property types should investors focus on? Those figures come from Colliers International, which noted that overall vacancy in the suburbs bumped up from 21.5 percent in the second quarter to 21.8 percent in the third quarter. Despite the rise in vacancy, however, activity remains strong at properties that are centrally located and offer modern amenities. For example, Class A vacancy remained flat at 22.3 percent. For high-quality, trophy assets in the suburban office market, on the other hand, vacancy was much lower, ending the third quarter at 16.6 percent. That’s down 170 basis points from the same time period in 2017. Transaction activity Six assets totaling 1.1 million square feet traded hands in the third quarter of 2019 and three others are currently under contract. As for leasing activity—including new leases and lease expansions—there were a combined 1.1 million square feet of deals in the third quarter, down slightly from 1.3 million square feet in the second quarter of 2019. Colliers tracked seven new leases or lease expansions of 15,000 square feet or larger that were signed throughout the suburbs during the third quarter of 2019. This includes the 26,239-square-foot lease that TransNational Payments, Inc.—a credit card processing services company—took at Pointe O’Hare I, 9550 West Higgins Road in Rosemont, Illinois. North The North region of the Chicago metro currently has 27,336,620 square feet of inventory across 283 buildings. Year-to-date, the area has absorbed 85,382 square feet and has a 20.1 percent vacancy rate. The largest absorption gain this quarter was in Bannockburn with 122,075 square feet, more than half of the submarket’s total gains. Northwest In the Northwest region, the vacancy rate stands at 29.8 percent with -285,937 square feet of absorption. The submarket is home to 253 buildings, comprising 30,081,835 square feet of space. The over 10 million square feet of inventory in Schaumburg is the submarket’s largest, and the city also had the highest absorption this quarter, 666,615 square feet. Arlington Heights, however, lost a whopping 205,313 square feet of absorption. Naperville In the area surround Naperville and Lisle, 185 buildings account for 15,378,286 square feet of inventory. This region lost 78,495 square feet of absorption year-to-date and the vacancy rate stands at 20.4 percent. Any cities with absorption gains this quarter were modest. Lisle saw the largest loss, -20,576 square feet, followed by Warrenville with -16,189 square feet. Oak Brook The Oak Brook submarket also saw negative absorption, with a -670,072 square foot rate, year-to-date. The vacancy rate of 18.6 percent applies to the 226 buildings in the area, comprising 23,364,433 square feet of space. Elmhurst and Oakbrook Terrace each had good absorption rates this quarter (23,213 and 28,719 square feet, respectively). Oak Brook lost over 60,000 square feet, however, followed by more than 40,000 square feet of negative absorption in Downers Grove. O’Hare Finally, there’s the O’Hare area, which has 13,096,991 square feet of inventory in 89 buildings. The submarket ended the third quarter with a 14.3 percent vacancy rate and -67,118 square feet of absorption. Chicago, Des Plaines and Rosemont all lost between 41,000 and 54,000 square feet of absorption in the third quarter while Bensenville and Park Ridge had modest gains. Forecast As landlords continue to improve trophy Class A assets to include modern design buildouts and new amenities, asking rates in these high-quality properties will exceed previous historical highs. Owners are willing to shell out capital to attract and retain tenants who, in turn, are willing to pay higher rents in exchange for higher concessions. There remains uncertainty of how vacancy will be impacted due to Cook County tax increases. These concerns loom over the O’Hare, Northwest and North submarkets in particular.