The Unassuming Chicago Office Type Quietly Driving Suburban Leasing

While other Chicago office types are seeing a slow-but-steady return to office, an under-recognized segment of the area’s suburban office stock is quietly outperforming its peers: single-story properties. 

Single-story office properties are leasing up faster than multistory counterparts in various suburban submarkets, according to NAI Hiffman data provided to Bisnow.

Smaller tenants have been quicker to make decisions and are capitalizing on more affordable rates on landlords’ newly built-out spec suites, said Steve Chrastka, executive vice president and partner at NAI Hiffman. 

“Single-story buildings are not the red-headed stepchild of the multistory anymore,” Chrastka said. “They're performing quite well.”

The vacancy rate in the third quarter for single-story office properties was at 13.4%, well below the more-than-26% mark across the broader suburban office market, according to NAI Hiffman data. Leasing activity is fairly robust, with about 710K SF of leases signed through the third quarter, compared to 181K SF in the same period last year. 

Chrastka, who represents over a million square feet of single-story office product, said tenants are often getting better rental rates than in Class-A multistory buildings. Those tenants also have access to the same area amenities, like expressways and public transportation, as those multistory buildings.  

The asset class began to attract more attention during the pandemic because many single-story properties are set up so tenants have individual entrances and their own HVAC systems and don't share common areas with other tenants, Chrastka said. 

“The leasing activity in the smaller tenant space has been consistently much more robust and has outpaced the larger institutional type of tenants,” he said. “They're not mandated by anybody, they can do what they want. They've never stopped.”

In certain submarkets, the difference in performance between the building types is even more pronounced. 

In Schaumburg, the office vacancy rate in Q3, excluding single-story office inventory, was 35.9%. It was 22.5% in the East-West Corridor. Rates for only single-story inventory were 15.1% and 13.5% in those markets, respectively. 

Typical groups that occupy single-story buildings are architects, construction groups, engineers, information technology companies and healthcare professionals, Chrastka said. Some of those service groups have helped backfill vacancies left by call centers during the pandemic, when they sent their staff home to work. 

Smaller tenants are typically not signing long-term leases, preferring one- to three-year terms, Chrastka said. Landlords with move-in-ready buildings will work with tenants on shorter terms and aim to keep them satisfied enough to renew their leases consistently. 

Time frames for completing a transaction are usually a lot quicker than larger corporate leases. 

“Small tenants are literally showing up saying, ‘I need it today,’” Chrastka said. “It's the same fundamentals that go into it. From a landlord perspective, we're just dealing with a much more mobile, quicker-moving type of group.”

Direct decision-makers usually come on single-story building tours, so the first impression is critical, because in small business leasing, the person who is cutting the check is going to be in person evaluating the space, Chrastka said. That’s different from larger-scale leasing, where the operations department often helps bigger companies make decisions. 

Single-story properties still share some similarities in leasing and construction with multistory properties. Chrastka said landlords building out spec suites is still key to generating strong leasing activity, and the elevated construction costs to do so are impacting both asset types fairly equally. 

Chrastka said one example of a successful lease-up play game is One Story Schaumburg, a six-building, 130K SF single-story campus at 1305-1375 Remington Road in Schaumburg. The buildings at 1340-1350 were 20% occupied when purchased, before new ownership built out 12 move-in ready office suites. 

The move, coupled with other lease signings, brought the two buildings over 85% occupied in less than two years. The entire complex previously had a 70% occupancy rate and has now reached an 87% occupancy level.

“The value of single-story has come into full effect,” Chrastka said. “A lot of multistory buildings just don't offer a lot of small suites, and you still have a very large active business population that has grown. Small businesses need a home.”