AI firm Teragonia Inks Fulton Market Office Sublease

Chicago office subleases have abounded since the pandemic reduced downtown commercial real estate demand, but they’re starting to disappear in a boon for landlords.

Artificial intelligence firm Teragonia is the latest company to take a chunk out of the Windy City’s secondhand office market, with a deal to move into the fourth floor of 318 North Carpenter Street in Fulton Market, the company confirmed.

Teragonia is subleasing a 16,000-square-foot space from Flock Freight, a logistics firm that previously occupied the fourth floor and then expanded into the fifth floor in 2022. Flock Freight had been shopping its entire two-story, 31,000-square-foot space on the sublease market since 2023. But it opted to keep the fifth floor for its employees, as it brought in Teragonia for just over half the space on a seven-year term, according to the companies.

The sublease likely offers relief to the landlords. Chicago-based developer John Murphy and its partner, Creek Lane Capital, jointly built the seven-story, 96,000-square-foot building at 318 North Carpenter, completing construction in 2020. Online marketing materials show the property’s landlords are still offering portions of the second floor to rent as offices, and up to 15,712 square feet of space on the third floor.

An abundance of sublease options proliferated throughout Chicago in the post-pandemic market, reaching a record high of more than 8 million square feet at the end of 2023. Those office listings have allowed companies looking for work space to get into premier buildings on rents that often undercut the cost of leasing straight from a landlord. People familiar with the market said subtenants are lately paying direct tenants as little as 50 percent of the rent cost of a standard lease.

“AI companies are becoming a catalyst for office demand nationally,” said CBRE broker Tony Coglianese, who represented Teragonia alongside Tyler Reaumond. “This deal positions them to scale efficiently while maintaining cost discipline per employee.”

The amount of available sublease space on the Chicago market has shrunk over the past few years to just more than 5 million square feet, according to a March report from brokerage Transwestern. About 80 percent of the total sublease offerings are within properties considered Class A, and they’re largely languishing on the market, with the average time they’ve been up for grabs exceeding 2.5 years, Transwestern found.

“Moving subleases is not easy in this market. It takes a lot of grit,” said Phil Geiger, a Stream Realty broker who represented Flock Freight in negotiations along with Paige Korte. “You can’t just throw it up on CoStar and hope someone comes by. It takes a lot of aggressive marketing.”

Teragonia took the sublease as the company scales up in Chicago, with the deal allowing it to move out of a coworking space it was using nearby. The firm provides AI services to private equity-backed firms in distribution, health care and other sectors, and is planning to triple its Chicago headcount over the next two years from about 25 employees today, said Teragonia CEO Thomas T. Thomas.

“We only looked in Fulton Market,” he said, noting his company’s workforce consists of many professionals in their late 20s who enjoy the neighborhood’s retail scene. That’s a cohort he wants to focus on as he seeks to bring on more talent, and the reason he wanted to be in the area.