Chicago’s suburbs saw the second-best quarter for office demand since before the pandemic despite the market recording its 15th consecutive quarter of increased vacancies.
The vacancy rate for Chicago’s suburban office properties rose to 31.4 percent in the third quarter, an increase from 29.7 percent the previous year and 22.1 percent at the start of the pandemic, Crain’s reported, citing data from JLL. However, net absorption, the measure of space leased and occupied versus vacated, increased by 144,000 square feet, a sign of returning demand.
Chicago suburbs have lost 4 million square feet of tenants since early 2020, a loss greater than the contraction during the 2008 financial crisis. However, there are glimmers of hope for the market. Borrowing costs have recently begun to decline, providing some relief for property owners burdened by high-interest rates.
Prominent deals during the quarter include Medline Industries’ 214,000-square-foot lease in Northbrook and a pending sublease by ADP, which is negotiating to occupy 150,000 square feet in Schaumburg. ADP’s move will free up space at its location in Elk Grove Village, which is set to be redeveloped into a data center.
The market has stabilized, but landlords are still in for a fight, said Jim Rose of JLL who specializes in tenant lease negotiations.
“I don’t think it will get to a point soon where landlords can be super picky,” he said.
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The influx of sublease space has contributed to the stubbornly high vacancy rate. Fleet management company Wheels recently subleased 214,000 square feet at Zurich North America’s Schaumburg headquarters. While such deals contribute to positive absorption, they also keep vacancy rates elevated as companies opt for discounted sublease options rather than direct leases.
Investors, however, are starting to eye suburban office properties as potential bargains. For example, a Minnesota-based firm is buying the Presidents Plaza office complex near O’Hare Airport for less than half of what it sold for six years ago.
— Andrew Terrell