As A Tech Hub, River North Is Nearing Its Limit
River North has been a burgeoning tech hub for some years, but now it looks like the market is bumping up against a natural limit to growth — a lack of space that tech firms might want to occupy.
"New development will need to occur and is underway," Serot said. "The trend to-date is that River North tech firms have hired around 100 employees or more, so they have no choice but to consider the central business district — west, east, central, river west, Fulton Market — for their next office to ensure flexibility as they try to recruit and retain talent."
Tenants have absorbed a significant amount of office space in River North, which now boasts a 7.5% vacancy rate. The space that is available is now more expensive.
Average asking office rents in River North rose 10.6% to $42.41/SF from Q2 2016 to Q2 2018, significantly outpacing the broader Chicago market, which saw rents rise 5.8% over the same time period, according to CBRE’s 2018 Tech-30 report, which measures the tech industry’s impact on office rents in the 30 leading tech markets in the U.S. and Canada.
If you broaden back to 2010, rental increases in River North have been even more dramatic, as the market has seen a 90% asking rent increase since then, CBRE reports. Currently, River North rents represent a 38% premium over the overall Chicago market average asking rate of $30.67/SF.
At the same time, River North office property valuations have been mushrooming.
Call it the tech effect, a Chicago version of what has happened in South Lake Union in Seattle or Cambridge in greater Boston. Chicago has added 30,000 tech jobs in the past seven years to become the 12th-largest tech market in North America in terms of employment.
"The tech industry has perhaps been the biggest change agent in the Chicago market in recent years, bringing a large amount of talent to the CBD, and establishing new office, residential and restaurant and retail opportunities to cater to this population,” Serot said.
The tech sector is booming from local startups expanding rapidly and national tech firms establishing regional presences.
Though River North has been a top target, as it runs out of space and gets pricier, tech firms are starting to move into the West Loop and become catalysts for new submarkets, like has happened at Fulton Market, Serot said.
Even with rent growth, Chicago remains a relatively inexpensive market for tech companies, which is helping inspire coastal operations to open branch operations here. San Francisco Bay Area tech firms have taken 1.5M SF in Chicago over the past five years, and New York-based firms took another 200K SF, CBRE notes.
“Many of the largest companies in the tech sector have decided to expand in Chicago to tap into [a] strong workforce, the dynamic market and the relative affordability,” Serot said. “It’s no longer just a play for administrative and sales positions. We're seeing a lot of growth in true tech jobs."