Though the Chicago suburban office market exited 2017 with a bang, the region saw a slight slowdown at the beginning of this year. That’s according to new research by Colliers International.
Chicago’s suburbs closed out the first quarter of 2018 with negative office absorption, though there were five new lease transactions greater than 25,000 square feet. The report noted that several very large transactions that were signed in 2017 will commence throughout 2018. This includes Amita Healthcare’s committment last August to relocate into 225,000 square feet on the Navistar campus in Lisle, the largest suburban office lease in over a year.
There were six asset sales in Q1 2018, with three more currently under contract. Schaumburg had some notable transactions, including the handoff of the 488,795-square-foot Windy Point I & II from Piedmont Office Realty Trust to Bridge Investment Group, Vinakom’s acquisition of the 240,880-square-foot Two Woodfield Lake from McKnight Capital and Sabal Financial Group’s sale of a 201,188-square-foot, 11-story office building, 1051 Perimeter Drive, to Marc Realty.
“Mid-sized tenants continue to offer the most relocation potential,” the report’s author and senior research manager, Ronna Larsen, wrote. Per the report, there are currently 110 tenants who need space in the 10,000- to 150,000-square-foot range that are actively seeking leases in the suburban office market. Nearly half—45 percent—are focused on the East-West Corridor.
Amenities continue to be a powerful weapon in the search for tenants. Some that the suburban Chicago office market are seeing right now include structured parking, power to accommodate the modern tenant, employee wellness / fitness centers, game rooms, food service, tenant lounges, conference centers and outdoor spaces.
“Demand for quality continued throughout the suburbs, especially in the O’Hare and Oak Brooks markets,” Larsen wrote, “as well-capitalized owners in the suburbs remain focused on building improvements to attract and retain high-quality office tenants.”
Suburban office vacancy was up slightly in the first quarter at 20.8 percent, a modest rise from the 20.3 percent at the end of 2017. The Lisle-Naperville market suffered a sizable vacancy increase of 1.2 percent to 22.4 percent total; this should be temporary, however, pending Amita Health’s move during the second quarter into the space it leased last year.
The first quarter of 2018 ended with 666,628 square feet of negative net absorption; for the same time period last year, the suburbs enjoyed 60,729 square feet of positive net absorption. Class A net absorption was positive, but just barely with 26 square feet, compared to 353,539 square feet of positive quarterly absorption in the first quarter of 2017.
“While there hasn’t been any speculative construction delivered since 2010, and none is expected throughout 2018, build-to-suit activity continues within the suburban market,” Larsen wrote.
New projects include Central States Funds’ 150,000-square-foot, build-to-suit development at 8655 W. Higgins Road in Chicago and the Huntington 90 development, a build-to-suit business park in Hoffman Estates by McShane Development Company and MetLife Real Estate Investors.
