Q2 2012 Chicago, Illinois Office Submarket Trends

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Q2 2012 Chicago, Illinois Office Submarket Trends

Downtown Chicago, centered on “The Loop” within and adjacent to the central corridor of the city’s rail transit line, is one of the largest and most vibrant Central Business Districts in the United States. The Loop area and adjacent submarkets in the Gold Coast area account for about half the metro area inventory. For much of the last half of the 20th Century the CBD had been losing its vitality to the booming suburbs. Most of the suburban inventory is in or near the most affluent suburbs along the commuter rail lines and interstates, in the Northwest, along Lake Michigan and in the West. More recently, the CBD has regained its vitality while many of the original suburban office properties are aging and facing increased competition from both the city and the exurbs. The main CBD submarkets all have average asking rents above $25.00 psf, whereas all other submarkets are lower.

Downtown/West Loop

  • The West Loop submarket has the largest inventory of any in the Chicago area market at 42 million square feet. It is also home to two of four commuter rail terminals, those are the lines for the more affluent northern and western suburbs.
  • Reis reports a second quarter 2012 vacancy rate of 14.6% and an average asking rent of $34.93 psf, the highest among 13 submarkets.
  • Net absorption was negative for the third consecutive quarter at 42,000 square feet, and the vacancy rate increased 10 basis points. It is up 50 from a year earlier. Both the average asking rent and the average effective rent rose 0.2%, the latter to $26.67 psf. The year-over-year gains are 0.7% and 1.0%, respectively.
  • Jones Lang LaSalle reports a vacancy rate of 15.6% and an average asking rent of $34.21 psf for 41 million square feet in the West Loop. This source reports slightly positive net absorption for the quarter and year-to-date.
  • “Navteq signed a new lease for 59,000 square feet at 500 W. Madison,” according to this source.
  • “Dotomi Inc. more than tripled its size in the West Loop,” according to Cushman & Wakefield. “The rapidly expanding advertising firm leased 80,049 square feet at 101 North Wacker Drive, up from its current 23,817 square feet at 168 North Clinton Street.”
  • “Two projects are now in the race for the first CBD office development after the recession—150 North Riverside Plaza by John O’Donnell and 444 W Lake Street, a joint venture of Hines and Ivanhoe Cambridge. Both buildings are located in the West Loop with a target size of approximately 900,000 square feet,” according to Cushman & Wakefield.

Downtown Chicago/Central Loop

  • For 33.3 million square feet in its Central Loop submarket, Reis reports a vacancy rate of 15.9% and an average asking rent of $32.64 psf, the second highest metrowide.
  • Net absorption has been sharply negative here for three quarters in a row here as well, with minus 250,000 square feet during the second quarter and minus 466,000 year-to-date. The vacancy rate rose 70 basis points in the second quarter and is up 150 from a year earlier. Both the average asking rent and the average effective rent edged down 0.2%, the latter to $26.55 psf. The year-over-year gains are 1.1% asking and 1.5% effective.
  • Jones Lang LsSalle reports a vacancy rate of 14.7% an average asking rent of $29.72 psf for 41 million square feet in the Central Loop
  • “The most notable new lease of this past quarter was Chicago Title & Trust’s 86,207-square-foot lease at 10 South LaSalle Street,” according to Cushman & Wakefield. “The title insurance company was continually downsizing at its longtime headquarters at 161 North Clark Street and ultimately chose to relocate to new space.”

Downtown/River North

  • The River North submarket, north of the loop and the Chicago River, is small at 12.5 million square feet, but it was the site of major development activity in the 2000s with nearly 2.5 million square feet added in 2009. Even so, the 13.2% vacancy rate for the second quarter is the second lowest among the submarkets; the average asking rent of $27.43 psf is the lowest in the CBD.
  • Net absorption has been slightly negative for five consecutive quarters. In the second quarter the vacancy rate rose 40 basis points, and it is up 90 from a year earlier. The average asking rent rose 0.3% during the second quarter, with the average effective rent up 0.2% to $22.65 psf. The year-over-year gains are 1.1% and 1.4%, respectively.
  • Jones Lang LaSalle reports a vacancy rate of 11.4% and an average asking rent of $33.31 psf for 13.7 million square feet in River North. “Gelber Group signed a new lease for 35,000 square feet at 350 N Orleans,” according to this source.
  • “Not included in new leasing statistics are the numerous renewals signed, including Foley & Lardner’s downsizing to 169,000 square feet at 321 North Clark Street,” according to Cushman & Wakefield. Another CBD new building proposal cited by this source is the Kennedy’s proposal for a mixed-use development at Wolf Point, “which could total three million square feet.”
  • Salesforce.com leased 116,700 square feet at 111 W. Illinois Street, according to Studley, Inc.
  • N. Michigan Avenue
  • Although the Miracle Mile/Gold Coast area surrounding this street north of The Loop is better known for hotels, shopping, and high rise luxury living, it also includes 11.1 million square feet of office space according to Reis.
  • The average asking rent of $34.52 psf is second highest among the submarkets, while the vacancy rate is 18.2%, by far the highest in the greater CBD area.
  • The vacancy rate, however, fell 190 basis points during the second quarter and is down 340 from the start of the year on 378,000 square feet of positive net absorption. Demand was strong here in late 2011 as well. Both the average asking rent and the average effective rent edged up 0.1% during second quarter, the latter to $25.80 psf. The year-over-year gains are 1.4% and 2.6%, respectively.
  • Jones Lang LaSalle reports a vacancy rate of 17.6% and asking rent of $32.08 psf for 14 million square feet in the North Michigan Avenue area. “BDO USA signed a new lease for 33,000 square feet at 330 N Wabash,” according to this source. “Northwestern University Feinberg School of Medicine signed a new lease at 633 N St. Clair for 62,000 square feet.”

Northwest Suburbs

  • The Northwest suburban submarket contains 38 million square feet of space according to Reis. The vacancy rate of 26.2% is the second highest among the submarkets, and the average asking rent of $20.77 psf is the second lowest in the suburbs.
  • The vacancy rate increased 20 basis points during the second quarter and is up 50 from a year earlier. Both the average asking rent and the average effective rent fell 0.9% during the quarter, the latter to $15.31 psf. Rents are down 0.5% asking and 0.3% effective from a year earlier.
  • For its 26.9 million-square-foot Northwest submarket, Jones Lang LaSalle reports a vacancy rate of 27.2% and an asking rent of $20.39 psf. “Rolling Meadows gained a sizeable tenant as Capital One agreed to 150,000 square feet at Atrium Corporate Center,” according to this source.

West Suburbs

  • This 39.3 million-square-foot submarket, along I-88 and the east-west rail lines, is the largest in the suburbs according to Reis. Its vacancy rate is 20.0% and its average asking rent is $23.16 psf.
  • The vacancy rate edged up 10 basis points during the second quarter but is down 50 from a year earlier. Both the average asking rent and the average effective rent slipped 0.1%, the latter to $18.02 psf. The year-over-year gains are 2.3% and 2.7%, respectively.
  • This submarket dominates space under construction, according to Reis. A July 2013 delivery is anticipated for the 250,000-square-foot first phase of Legacy Business Center in St. Charles, Kane County. A 250,000-square-foot second phase has been proposed. The 100,000-square-foot third building of Entancia Corporate Center is under construction in Burr Ridge, with an uncertain completion date. In addition, nearly 180,000 square feet of office condominium space is under construction in the submarket.
  • For 21 million square feet in its Eastern East-West submarket, Jones Lang LaSalle reports a vacancy rate of 20.0% and an average asking rent of $21.70 psf. For 14.6 million square feet in its Western East-West submarket, this source reports 21.6% and $21.12 psf.
  • “Waste Management extended on 52,000 square feet at Butterfield Centre in Lombard,” according to Jones Lang LaSalle.
  • Allstate leased 94,200 square feet at 9022 Heritage Parkway and Crowe Horwath leased 82,800 square feet at 1 Mid America, according to Studley, Inc. The relocation of Sara Lee’s meat division from Downer’s Grove to Chicago will throw 300,000 square feet on the market here, according this source.

O’Hare Airport Area

  • For its 13.9-million-square-foot O’Hare Area submarket, Reis reports a vacancy rate of 26.3%, highest among the submarkets, and an average asking rent of $23.72 psf, highest in the suburbs.
  • The vacancy rate was unchanged from the prior quarter, as both the average asking rent and the average asking rent increased 0.3%, the latter to $18.16 psf. The vacancy rate is down 50 basis points from a year earlier, with rents up 0.7% and 0.8%, respectively.
  • Jones Lang LaSalle reports a vacancy rate of 24.1% and an asking rent of $21.85 psf for 13.7 million square feet in the O’Hare submarket. “Housewares giant World Kitchen will make a short move across the interstate and remain in Rosemont when it occupies 55,000 square feet at Columbia Centre III,” according to this source.
  • Studley, Inc. believes O’Hare is the only suburban submarket with strong enough demand to make a dent in available space, as large blocks of Class A supply are scarce. “The limited Class A supply could benefit Class B landlords who have waited patiently for the potential spillover of leasing opportunities.”
  • Reyes Holdings leased 127,000 square feet at 6250 N. River Road, according to this source, expanding its existing headquarters by 38,000 square feet.

North

  • The North submarket extends from the Chicago city border nearly to the Wisconsin border along Lake Michigan, The vacancy rate is 20.5% and the average asking rent is $23.52 psf for 19.3 million square feet in the North submarket according to Reis.
  • The 400,000-square-foot Astellas office complex completed construction in February in Northbrook, but net absorption totaled just 455,000 square feet in the first half of 2012. The vacancy rate fell 90 basis points in the second quarter. The average asking rent increased 0.3% over the quarter, with the average effective rent up 0.4% to $17.90 psf. The year-over-year gains are 1.7% and 1.8%, respectively.
  • For its North (Cook County) submarket, Jones Lang LaSalle reports a vacancy rate of 18.3% and an asking rent of $23.77 psf for 10.1 million square feet. For 11.2 million square feet in its North (Lake County) submarket, this source reports a vacancy rate of 29.6% and an asking rent of $22.73 psf.
  • “CareFusion Corporation leased most of the former Washington Mutual space at 75 North Fairway Drive in Vernon Hills for a total of 150,258 square feet,” according to Cushman & Wakefield. “Meanwhile, Kaufman Hall & Associates Inc. doubled its size to 50,766 square feet. The law firm expanded within Old Orchard Tower in Skokie by taking a portion of the newly marketed National Louis University space.”