Now that 2022 is here, what should we expect to see in the Chicago commercial real estate market?
How about a continued push from office workers to a hybrid work model? Or maybe the continued rise of sublease space? Will companies leave the city for the suburbs, and will the booming Fulton Market submarket continue its red-hot performance?
No one in commercial real estate has a crystal ball. But the researchers at Chicago’s MB Real Estate have highlighted these questions — and six others — in its latest report, “Chicago Commercial Real Estate: 10 Things to Watch in 2022.”
The report, released earlier this month, provides a look at 10 key questions for the Chicago CRE market in 2022. Of course, much of the report this year deals with the continuing threat of the COVID-19 pandemic and its impact on the Chicago commercial real estate scene.
What, then, are the important questions asked by the real estate professionals at MB Real Estate?
How will CRE change if COVID-19 causes an endemic? This question is an especially important one for office real estate. As MB Real Estate says in its report, some companies might turn to vaccine requirements, mask mandates and social distancing as a way to bring workers back to the office safely as the country learns to live with COVID-19. MB Real Estate says that hybrid work schedules might become a permanent tool as companies look to reduce the exposure of their workers to the virus and retain employees.
How will workers’ demands for hybrid work models impact office space needs? The hybrid work model has become a key tool for companies. Under this model, employees work part of the time from home and part of the time from the office. This model has become a popular choice for both employees and employers. Will companies need less office space as this work model continues to become more common? That’s one of the key questions MB Real Estate says that CRE professionals need to consider in 2022.
What is the future of Chicago’s developments and mega developments? MB Real Estate points out that the pandemic has not canceled development or mega-development plans in Chicago. But this doesn’t mean that COVID-19 hasn’t altered these plans, with some developers turning to smaller floorplates, for example. MB Real Estate points to such key developments as Lincoln Yards, The 78, One Central, Southbank Park and One Chicago as examples of big Chicago developments that are still continuing even as the pandemic shows signs of moving to an endemic phase.
What type of office buildings will fare better than others in 2022? As MB Real Estate says, not all commercial buildings will recover as quickly — or at all — from the pandemic. Building class, neighborhood and amenities will affect how each commercial building recovers in 2022. As MB Real Estate says, some tenants, especially office end users with hybrid work models, might seek smaller, higher-quality spaces in 2022, something that will benefit newer office buildings with more amenities. This might mean that Class-B and Class-C buildings will lower asking rents this year to compete in this new market.
Will sublease space rise, fall or plateau in 2022? As MB Real Estate says, Chicago companies are putting sublease space on the market today faster than tenants can lease it. Because of this, MB Real Estate predicts that sublease space will continue a slow growth in at least the first half of 2022.
Will tenants flock to the suburbs or Chicago’s downtown in 2022? Remember at the start of the pandemic when some wondered whether companies will move from urban office buildings to the suburbs? Some of that did happen. But as MB Real Estate points out in its report, the urban areas of Chicago remain a draw for companies seeking office space. MB says that companies, especially tech companies, continue to sign new office leases in the Chicago CBD, particularly in the Fulton Market submarket. That doesn’t mean that others aren’t looking toward the suburbs. United Airlines, for example, is moving 900 employees from its Willis Tower headquarters to the suburbs. MB Real Estate says there is no indication of a larger-scale flock of companies from the city to the suburbs. But the company did say this is something to watch in 2022.
Will the 2022 elections bring change to the Chicago CRE industry? MB Real Estate says that Cook County Assessor Fritz Kaegi’s reelection bid in November of this year will be a key race to watch for Chicago CRE professionals. As the company points out, Kaegi in 2018 said that county residents faced an unfair tax burden because of low appraisals of commercial space. Since winning that election, Kaegi has committed his office to finishing the triennial reassessment process for all of Cook County this year while using a new integrated property tax system. Will Kaegi win re-election in 2022 and what will this mean for the assessment of commercial property throughout Chicago? It’s a key question for real estate professionals to consider this year.
Will Fulton Market continue to exceed expectations in 2022? Here’s an interesting fact: River West, the submarket in which Fulton Market is nestled, was the only part of the Chicago CBD to experience overall positive office space absorption in 2021. Last year, Fulton Market continued to sign big deals and complete large developments. Notable deals here in 2021 included the largest office investment sale total (1000 W. Fulton), the highest price-per-square-foot for an office investment (1100 W. Fulton) and the largest completed office development (800 W. Fulton) in the Chicago central business district. MB Real Estate, not surprisingly, predicts more big office deals in the Fulton Market district this year.
Are restaurants, hotels and retail spaces ready to flourish? Last year was a tough one for downtown Chicago’s restaurants, hotels and retailers with the continuing impact of the pandemic and the perception that crime is on the rise throughout the city’s urban center. But MB Real Estate points to signs of hope for 2022. Chicago Loop leaders are brainstorming ways to reinvigorate the city’s famed Mag Mile retail strip as well as other parts of downtown. One idea is a new property tax on Mag Mile properties to help keep the area secure and safe from crime and to even assist retailers with storefront displays. Another proposed idea is the development of an architectural feature that would connect the Mag Mile with the lakefront. MB Real Estate says it’s too early to say what strategies the city and local business owners will take to keep its downtown areas strong. But there is hope that city leaders aren’t content to let Chicago’s Mag Mile fall into disarray.
What kinds of adaptive reuse will occur in 2022? As MB Real Estate says, large pieces of property in Chicago — from former suburban malls and big-box retail stores to office campuses and downtown office buildings — are ripe for adaptive reuse. One notable example? In the Chicago CBD, the Thompson Center appears to be on the precipice of adaptive reuse. Prime Group is in the process of purchasing this iconic, if challenging, building from the state and hopes to preserve and develop it as a mixed-use office, retail and hotel space. Also, 333 S. LaSalle, which previously housed CME Group’s trading floor, is being sold to Commonwealth Edison. ComEd plans to turn the five-story building into an electrical substation. In the suburbs, Allstate is selling its Northbrook, Illinois, campus to Dermody Properties, which plans to build about 3.2 million square feet of warehouse space. It’s clear that adaptive reuse, then, will remain a key trend in the Chicago-area CRE market.