What Does 2017 Hold? Our Experts Tell Us
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Last week, we asked local experts about the year in Chicago real estate. With 2017 on the horizon, we reached out to more experts to give us their predictions for the new year.
Office: The Suburbs Will Continue Their Comeback
NGKF managing director John Norris told us the strong suburban office market this year will be even better in 2017. The competition for trophy assets by developers will be more fierce and larger companies will seek out office space in those buildings, undeterred by the higher vacancy rates skewed by obsolete buildings and campus vacancies like the former AT&T campus in Hoffman Estates. The suburbs are especially strong in markets like O'Hare, Oak Brook and Evanston/Skokie, where the net rental averages haven't been seen before. This year, the average rents on trophy office assets like Triangle Plaza jumped $2/SF. Norris believes office properties averaging $17 to $18/SF have much room to grow. These markets are also strong because of their live/work/play environments and, in the case of Evanston/Skokie, little supply.
Norris also said the amenities arms race is in full swing in the burbs, as the fight to keep tenants from considering downtown moves continues. The question is how can trophy assets stand out and offer exciting packages.
Hotels: Convention Business Will Drive A Turnaround
After a year that saw RevPAR at downtown hotels fall to $154.01 thanks to an availability of rooms, over 2,400 rooms will be delivered next year. Half of those will come from the McCormick Place Marriott Marquis.
At our hospitality boom event two weeks ago, Metropolitain Pier and Exposition Authority CEO Lori Healey said there will be no softness in Chicago convention business—the big shows at McCormick Place are signed through 2028, and an upsurge in midsized trade show business is expected to continue. If those numbers trend upward, then occupancy rates and RevPAR should increase.
Condos: Bigger Will Remain Better
Belgravia Group founder Buzz Ruttenberg (right, with his Lakewest Venture Partners partners Jonathan McCullough and David Mann) has feasted on large footprint condos post-recovery and sees business picking up next year as empty nesters trade in their suburban homes for city condos. Ruttenberg said larger condos offer homeowners the space of a single-family home, but without the maintenance. These units also achieve the balance of having a mix of formal and casual spaces, which is rare in a condo.
The Cycle: Extra Innings With Trump?
It's impossible to predict what impact President-elect Donald Trump's policies will have on commercial real estate once he assumes office, but Atlas Residential CIO Leslie Andren hopes whatever the president-elect enacts will lead to a rebound. Andren said we're in the late innings of this cycle but, like the rain delay that gave the Cubs a breather in Game 7 of the World Series, we could see a spike in activity with any job growth.
The Innovators Will Thrive
Luxury Living Chicago Realty managing broker Aaron Galvin (right, with Akara Partners CEO Rajen Shastri) said a slowdown in lease activity early in 2017 should be expected because the flood of new apartments in the pipeline will begin to be delivered. But there's opportunity to achieve more aggregate rent on some unit types, with the right location and marketing strategy. The benefit can work both ways, as renters can lease a one-bedroom for 20% less than what they would pay for a studio in the same building. That innovation will allow forward-thinking developers and brokers to meet the challenges of coastal trends, which are arriving sooner than we think.