There are a number of trends driving activity in Chicago’s suburban office market. Vacancy remained relatively stable as healthcare users and Class B spaces drove much of the region’s demand.
According to a second quarter market report from CBRE, the Chicago suburban market witnessed 61,569 square feet of positive net absorption in Q2 2019. What’s more, direct vacancy shifted up just 60 basis points over the past year to 18.4 percent, signaling relative stability.
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Accounting for more than half of all the office space signed in the second quarter, healthcare companies committing to more than 400,000 square feet in the Chicago suburbs.
Planmeca, one of the world’s leading manufacturers of dental equipment, purchased the 90,000-square-foot former Serta Simmons building in Hoffman Estates. Situated on 19 acres, the site will serve as their U.S. headquarters corporate office, a testing and distribution center for their product lines and a showroom and training center. Cushman & Wakefield brokered that deal for Planmeca while CBRE represented Serta.
“Users have also acquired properties to allow for expansion and growth of their businesses, taking advantage of low pricing on small and medium vacant office buildings,” the authors of the report wrote. “We expect other former campuses to see occupancy gains as they are converted to multi-tenant, mixed-use projects.”
In Warrenville, Edward-Elmhurst Health (EEH) signed the largest lease of the quarter. The healthcare provider, which is comprised of three hospitals—Edward Hospital, Elmhurst Hospital and Linden Oaks Behavioral Health—will relocate from two facilities and expand into 188,083 square feet at 4201 Winfield Road. CBRE represented EEH in that deal, with JLL representing ownership.
Four of the five largest lease transactions were with healthcare tenants. Centene Corporation, a managed care organization that provides medicaid and related programs, took 90,000 square feet at 1333 Burr Ridge Parkway in Burr Ridge. Northwestern Memorial leased 82,618 square feet at 4525 Weaver Parkway in Warrenville.
The Chicago market’s suburban inventory was generally stable across all classes, with no single class’s direct vacancy ticking up more than a percentage point since the beginning of last year. There was dramatic movement among Class B stock in specific submarkets. Vacancy fell 7 basis points year-over-year in O’Hare, for example, and 129 basis points year-over-year in the North Suburban cluster.
“With rising rents and positive absorption, sellers are achieving their pricing expectations,” the authors of the report wrote. “Investors entering or expanding in the market are buying up properties with high occupancy and favorable NOI, as well as value-add investments with a low basis and significant upside potential.”
Tenants flocked to the $6.61 per-square-foot asking rent difference between Class A and Class B inventory ($29.15 and $22.54, respectively), signing leases totaling more than half a million square feet. In fact, Class B leases accounted for about 54 percent of all leasing activity in the second quarter.
Class B also had the most occupiers in Q2, with positive absorption of 53,711 square feet. Class A buildings continued their strong year, though, signing nearly 400,000 square feet of deals and seeing 20,893 square feet of positive absorption.
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