Office Insight From On High
Chicago office leasing is stagnant. At our Chicago State of Office event, we asked Ceres, the goddess of grain, for guidance.
Mythology lives on at the Chicago Board of Trade Building, where more than 325 of you joined us last week beneath Ceres for our event (her statue also hangs out on the roof).
Quarles & Brady real estate group partner Eric Fuglsang moderated, asking our leasing panel about: office’s latest demand drivers; the future of obsolete buildings downtown and in the suburbs; which submarkets have the most activity; and changes in space and tenant requirements. While the Trib aptly called the state’s tax policy (an office obstacle) less coherent than a Charlie Sheen rant, Chicago still made No. 6 on Foreign Policy magazine’s list of most livable cities worldwide, he says.
MB Real Estate EVP Andy Davidson, head of tenant rep, says there’s still activity with legal and finance tenants (though many are shrinking by 20% to 30%), but true demand lies in tech, education, and logistics. (We call them Bits, Books, and Boxes.) Andy predicts some older suburban offices will go healthcare, like the Opus project Northwestern picked up in Glenview. This market is seeing much less emphasis on overall economics/SF, he tells us. Rather, tenants are looking to make statements with their spaces, which are very public extensions of their brands (for Google that means pioneering Fulton Market; for AbbVie, it's prime visibility off the tollway).
CBRE EVP and suburban specialist David Saad says the 'burbs have seen expansions from company spinoffs like AbbVie, though pure organic growth is minimal. Big pharma has taken off in the north suburbs thanks to their intellectual capital, David says. He's been in discussions with Forest City about building new buildings in Illinois Science + Technology Park as the existing space is quickly filling up. Suburbs like Schaumburg and Rosemont have also done well, aided by minimal development. In terms of repositioning assets, it all depends on your basis, he says, citing White Oak’s Columbia Centre near O’Hare as one property that did it right.
JLL managing director Steve Smith gave us the lowdown on downtown agency leasing. Over the last three years, 25,000 new downtown jobs have been announced from relos and expansions (Walgreens, Grainger, GE Capital, etc.), he says. Add that to growth around universities and Chicago’s push to be the Midwest’s digital capital, and you could be seeing several millions of square feet of absorption down the road, he says. (Good for the economy—bad if you like to stretch out at your desk.) Those attracted to new developments will likely be companies fitting more into less (to afford the rents), or companies like hedge funds or private equity groups where cost of the space is less critical, he thinks.
Colliers principal and national tenant rep Bob Chodos says rents for top Class-A spaces have jumped to the high $30s/SF. Though occupancy costs tend to be about 7% of the cost of doing business, creating the right workplace environment for the revenue engine residing “in” the real estate is the real opportunity, Bob says. Chicago can’t just let businesses move out of state and even out of the country, he tells us, and stories like Toyota leaving California for Texas or Pfizer attempting to invert to a UK company by trying to acquire AstraZeneca should be a wake-up call to us all. (If you see any CEOs buying new luggage, alert the BOT.)
On our way out we paid respects to the goddesses of industry and agriculture, outside the CBOT Building. In today’s tech-focused market, we can’t forget the importance of those who make things and grow things. (Though we swear their eyes were following us.)
Stay tuned for more event coverage tomorrow and check our more pictures here.