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The broker panel at Bisnow's Chicago State of Office at Trump Chicago on Tuesday had a lot on its mind: office leasing, naturally, but also economic development in the city and the mayor's role in it; the city vs. the suburbs; and even the prospect of CBD office development. Surprisingly, most of the panel thought that Chicago is very likely to see a big new tower by '16 or '17, despite the relatively middling occupancy and leasing picture Downtown.
Steve Smith
JLL managing director Steve Smith (right) said that he thought the race was already on to build something new in the CBD (a "space race" for new millenium), targeting anchor tenants with lease expirations from 2015 to 2017, though such a development might be smaller than generally expected, 400k SF or so. But in any case he expects it to be in the West Loop. The first building out of the ground ought to do reasonably well, he predicted, despite the fact that leasing in the market isn't robust. Securitization of leases is still "alive and well," Steve added, and he doesn't expect that to change.
Reznick (Build) JCHI
Vicki Noonan
Tishman Speyer's managing director Vicki Noonan agreed that with the improving economy, she wouldn't be surprised if someone announced a new development by the end of the year. Of course there still would be competition from existing assets in the marketplace, a number of which still have blocks of vacant space that can be reconfigured and modernized for users who might otherwise consider anchoring something new. Existing space, in other words, is still a contender.
Joe Learner
As an office market, Chicago has staying power that isn't entirely explained by economics, Studley EVP Joe Learner told the audience. Illinois is a high-tax state, for one thing, and the region's infrastructure is a bit frayed. Still, Chicago has a location, transportation network, educational and cultural institutions—and a fine urban vibe—and its office assets can compete with anything on either of the coasts. The city also happens to have a tireless promoter in Mayor Rahm Emanuel; one of whose main focuses in office has been to bring jobs into the city. The rest of the panel agreed with that assessment of the mayor, noting with surprise that he's even reaching out to the CRE industry to achieve his job-growth aims.
Andy Davidson
MB Real Estate EVP Andy Davidson said that Chicago is indeed well-positioned to take advantage of job growth in the industries that will continue to expand, such as healthcare. The city also has an edge in what he called "secondary leasing" by major tech companies, with Google being a prime example. No one is expecting Google or any other major tech player to pull up stakes and relocate to Chicago, but the company has leased a major amount of space in the city, recognizing its importance in the greater scheme of commerce—and the fact that it's easier to find talent here than in a lot of other places.
Chris Connelly
CBRE executive managing director Chris Connelly said that most of the advantages of being in Chicago are enjoyed by office properties in the CBD. The 'burbs, on the other hand, are having a harder time of it, and that shows in a vacancy rate that's roughly 700 bps higher in suburban Chicago than Downtown. Corporate migration from the suburbs to the city has been a factor in that, he said, but more important in driving CBD leasing is organic growth among local companies and companies from outside the area. When an employer wants to catch the attention of younger workers—the next generation of office space users—it's more likely to locate in the city than the suburbs.
Ted Yi
The panel, expertly moderated by Quarles & Brady partner Ted Yi, also touched on some of the hotter submarkets Downtown—the West Loop, for one, has been seeing a bit of action lately—and the uncertainties posed for office space as the next generation of office workers comes of age. Some of the previous radical visions of hoteling and mass downsizing of office space (no place for anyone to sit, ever) haven't come to pass, but there's no doubt that younger workers will interact with their office space differently than the increasingly fogey-fying baby boomers. It's still an open question as to how that generational shift will affect demand for space.
Bill Vai, John Simon
US Equities Realty SVPs Bill Vail (left) and John Simon told us that business has been picking up lately for the company, which manages and leases properties mostly in the Chicago area. And they're not alone: According to a recent report by the company, the Downtown vacancy rate in Q1 was 14.1%, down from 15% a year earlier.
Bisnow sponsor PTG Paradigm Tax Group also reports that business is brisk, which should be little surprise, since finding lawful ways to reduce one's property tax burden is going to be popular no matter what else is going on. Pictured from left are PTG's Steve Newman, Nicholas Hunter, and Robert Dunlap.
Another Bisnow sponsor showing its stuff at State of Office was RealView, maker of the RealView Mobile Inspection Program. Above, RealView EVP David Howorka demonstrates its mobility.