Why Some Investors Are Shunning Downtown for the 'Burbs

Suburban office investment activity continues to snowball as leasing improves and larger tenants expand. That’s why we’re pumped to discuss its future and past (i.e. our favorite John Hughes movies) at Bisnow’s State of the Suburbs event on Oct. 2.

Hamilton Partners partner Mike Rolfs, one of our panelists, says it feels like a new building is going on the block every couple of weeks (like First American Properties’ Commerce Point I and II in Arlington Heights). “It’s a good time to get value,” he says, “and well-leased owners are taking advantage.” Even traditionally downtown office buyers have joined the scrum as premiums shoot up in the CBD, like Florida-based Accesso Partners, which recently bought Hamilton’s 259k SF Riverwalk II property in Buffalo Grove. Mike’s seeing most investors looking primarily at well-leased buildings, though some are still willing to take on a value-add play with lease-up risk (like Motorola Mobility's old HQ in Libertyville).

With old product nearing its expiration date, you’re also seeing some adaptive reuse and multifamily development (on office-zoned land) to capitalize on the red-hot rental market, Mike says. (Those projects also help shrink land inventory and tighten up the market.) With rents so low, it’s difficult to commit to new construction and build-to-suits unless you can snag a tenant whose rate justifies the deal. Hamilton’s latest news: a new full-floor tenant at 1100 W Lake Cook Rd (above) in Buffalo Grove (where Hamilton is in the midst of capital improvements); some multifamily in Vernon Hills; and three big leases totaling close to 300k SF in Itasca at One Pierce Pl and 300 Park Blvd.

The trick to attracting and retaining suburban tenants? It’s still parking and amenities, Mike says, especially as companies pack more people into less space. He’s also seeing increased interest in spec suites from “bread-and-butter” tenants (1,000 SF to 3,000 SF), but it’s concerning how those small deals are becoming harder to find. Entrepreneurial firms and individuals have embraced the flexibility of Starbucks and other types of short-term office spaces, but hopefully this is a passing trend until people regain confidence in the economy, Mike says. Outside of the office, Mike can’t wait for his daughter’s October wedding at the Notre Dame Basilica (3-0 in football so far, sports fans). Buy your event tix here.

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