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Suburban Chicago office space vacancy drops

Suburban Chicago office vacancy drops
Crains
October 23,2014

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For the first time since 2011 the office vacancy rate for suburban Chicago dropped for two quarters in a row, providing rare momentum in a long-stagnant market.

Overall vacancy fell to 23.4 percent in the third quarter, down from 23.7 percent in the second quarter and 24.2 percent a year earlier, according to Chicago-based Jones Lang LaSalle Inc. The vacancy rate hasn’t been that low since fourth-quarter 2008.

Yet landlords still face a long road back to pre-recession vacancy levels below 20 percent. Vacancy peaked at 25.4 percent in 2010.

“It feels slow,” said tenant broker Gregg Raus, an executive vice president at JLL. “My deal volume is down, and everyone I talk to on the landlord side says Mobdro the number of showings is down from what it traditionally is.

“The overall business climate is keeping people conservative. Really, the only thing that’s growing is tech, and most of that is downtown. There’s not a lot of tech in the suburbs anymore.”

AbbVie Inc., the pharmaceutical spinoff of North Chicago-based Abbott Laboratories, began moving into a 558,859-square-foot building in north suburban Mettawa during the third quarter, but the vacancy drop mostly resulted from a combination of several deals of less than 20,000 square feet, according to JLL.

But many tenants leasing less space as they shrink their offices. In the biggest third-quarter deal, insurer Zurich North America’s signed a 26-year lease for a 753,300-square-foot new campus under development in Schaumburg. That’s less than the 895,400 square feet Zurich leases in its current Schaumburg headquarters. The lease will appear in the quarterly vacancy numbers when Zurich moves in late 2016.

Still, Mr. Raus thinks the Zurich deal will be good for the market.

“The Zurich deal is going to create a lot of positive activity in the market, because some of their business partners may think about relocating close to them,” he said.

HAMILTON LAKES DEALS

Spillover activity would be welcome in the northwest submarket, which tied the western east-west corridor for Mobdro APK Download second-highest overall vacancy at 26.1 percent during the third quarter. Lake County’ continued to experience the highest overall vacancy, falling to 28.7 percent from 30.3 percent. Cook County maintained the lowest vacancy, although it climbed to 16.4 percent from 16.0 in the previous period.

Two of the other largest third-quarter leases were at 1 Pierce Place in west suburban Itasca’s Hamilton Lakes Business Park, although the companies that signed them are moving from similar square footage elsewhere in the suburbs. Textbook publisher Houghton Mifflin Harcourt Co. leased 106,000 square feet at the property, where it will move next year from Rolling Meadows, and marketing firm Epsilon is taking 42,435 square feet in a move from offices in Schaumburg and West Chicago.

Demand, as measured by net absorption — the change in the amount of leased and occupied space compared with the previous quarter — increased by 300,837 square feet. Net absorption year-to-date is 879,055 square feet, compared with 607,590 for all of 2013.

Few huge deals appear to be in the works for the coming quarters, Mr. Raus said.

“There’s not a ton of big deals out there, and the few that are out there are potential build-to-suits,” new construction that would create new vacancies in existing buildings, he said.

“I think it will be slow and steady,” Mr. Raus said. “I don’t think you’re going to see a big jump or a big drop in vacancy.”

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