Suburban Chicago Office Vacancy Rate Flat at 24.4%

Suburban Chicago Office Vacancy 2Q 2013

Office landlords in Chicago’s suburbs continue to shuffle the deck, but they’re still playing a tricky hand.

Much suburban leasing activity has been the result of companies moving rather than growing, leaving overall vacancy flat at 24.4 percent in the second quarter, according to a report from Chicago-based Jones Lang LaSalle Inc. That’s the same percentage as in the first quarter and a year earlier.

“Right now it’s just trading places,” said tenant broker Eric Kunkel, an executive vice president at Jones Lang LaSalle. “There’s not a lot of true absorption.”

Demand, as measured by absorption — the change in the amount of leased and occupied space compared with the previous quarter — was -16,978 square feet for the quarter.

Leading the quarter was a 67,000-square-foot expansion by Capital One Corp. at the Atrium Corporate Center in northwest suburban Rolling Meadows. The McLean, Va.-based credit card issuer added the space on top of 150,000 square feet it leased there last year.

In a quiet three months for large leases, there were no other deals exceeding 30,000 square feet. Halfway through this year, there was just one new lease of more than 100,000 square feet, a 139,470-square-foot headquarters move by Advocate Health Care to Highland Landmark I in Downers Grove. In 2012, there were 10 new leases of more than 100,000 square feet.

While it doesn’t count as a lease, the American Academy of Orthopaedic Surgeons pulled off the biggest deal of the quarter, announcing plans to build a 165,000-square-foot headquarters in Rosemont. Even though suburban vacancies remain high, it’s hard to find big blocks of contiguous space, one reason build-to-suit projects can make sense.

“Build-to-suits are driven by location,” said Mr. Kunkel, who represented the surgeons group. “The O’Hare market continues to be pretty tight, especially Class A product. That’s an example of a market that couldn’t handle the requirement that we had.”

Smaller and mid-size tenants continue to enjoy low rents and a range of choices, often while cutting back space as their existing leases expire. Landlords often are stuck in bidding wars for the same tenants, with relatively few companies expanding or coming into the suburbs from elsewhere.

Although boosted by the Capital One deal, the northwest submarket had 27.2 percent overall vacancy, second only to Lake County’s 28.5 percent. Cook County’s was lowest, at 17.3 percent.

For landlords, the picture is a bit brighter than the post-crash high of 25.4 percent vacancy three years earlier, but the bounce-back remains gradual.

“My feeling is that we’re going to stay flat or maybe even trend down a little bit (for landlords),” Mr. Kunkel said. “I don’t see any major movement until we get some job growth in the market. I don’t see any real drivers out there.”

Source: Ryan Ori July 15, 2013
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