- Richard M. Gatto
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Are the Chicago Suburbs Coming Back?
Over the past several years the Chicago suburban real estate market has struggled. But, the recent decision by Caterpillar to relocate its global headquarters to Deerfield may be a harbinger of things to come. Are corporations starting to see the virtues of staying in the burbs?
One reason for this may be that the CBD has become forbiddingly expensive. Rents rose for tenants last year in Class A buildings at twice the 2015 rate and concessions slowed, but supply of new space is expected to slow the pace this year. Fewer suburb-to-downtown corporate relocations also could alleviate rent increases, says real estate firm Savills Studley. During the first quarter, the downtown office vacancy rate rose to a two-year peak of 13.1 percent, according to real estate firm CBRE.
If a suburban rebound is coming, itwill not be equal across the board, as suburbs like Oak Brook, Downers Grove and the O’Hare market continue to thrive while others like Lincolnshire are struggling. Because some suburbs are not expanding, the overall market still shows only modest growth with vacancies still at 21% of sublease space of 2.6m SF overall. There are several different reasons why certain suburbs have a distinct advantage over others, and this is mostly due to location and quality of existing buildings as well as a high quality housing stock and amenity base. Of the 5 new developments proposed, two are build-to-suits and the rest are in transit-oriented, high-density suburbs like Rosemont, Oak Brook and Deerfield. One the other hands, suburbs like Naperville have large blocks of vacant space. Overall, the largest direct block of space on the market continues to be 1,300,000 square feet at 2000 W. Att Center Drive in Hoffman Estates, which AT&T vacated in August 2016. And then, there’s the 133,237 square feet at 5500 Pearl Street in Rosemont, which Xerox Corporation will be vacating by the end of this year.
Despite these challenges, It is still significant that investors continue to see a recovery ahead. The largest suburban office investment in the first quarter was GlenStar Properties’ purchase of Schaumburg Corporate Center, a collection of three office buildings totaling 1 million square feet on Woodfield Road in the Northwest submarket, for $70,749,500. Despite, news to the contrary, large, master-planned campuses still offer an opportunity for high-density, transit-served development where workers can get an urban experience in a suburban location.