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Despite Progress, Suburban Office Market Still Not Past The Recession

Chicago’s suburban office market has still not recovered from the recession. That was the takeaway from MBRE’s just-released statistics on the first quarter. The overall direct vacancy rate increased from 20.55% in the fourth quarter to 20.79%, almost four percentage points higher than in 2007, as the market saw a total of 609K SF of negative absorption.

Motorola Solutions' former Schaumburg campus

That is a bad sign, considering that since 2011, on average the suburban office market experienced annual positive absorption of 389K SF.

The company partly attributes the market’s moribund state to the many obsolete corporate campuses and other buildings that remain part of its inventory.

“Many of these buildings are still advertised as on the market, despite the fact that they have been empty for years, are dated, and have little hope of attracting tenants,” MBRE said.

It estimates that if these properties were removed from the suburban inventory, the overall vacancy rate would sink 3.7 percentage points to 17.1%.  

The suburban market still has roughly the same amount of inventory it did in 2011, about 112M SF.

The recent sale of AT&T’s old campus in Hoffman Estates to New Jersey-based Somerset Development, which plans to transform it into a mixed-use complex, along with Hines’ plan to revamp the old McDonald’s campus in Oak Brook, and the ongoing transformation of the 225-acre Motorola Solutions site in Schaumburg, are signs that suburban towns may eventually find uses for the white elephants that dot the landscape.

“The North submarket would benefit the most from a reduction in supply, indicating that the Northern inventory is outdated,” MBRE added.

All of the suburban submarkets experienced negative absorption in the first quarter, the company’s data shows. The North and Northwest fared worst at 193K SF and 255K SF, respectively.

Tallgrass Corporate Center in Bolingbrook, Ill.

In the Northwest submarket, Continental Automotive Systems contracted by 145K SF at 21440 Lake Cook Road in Deer Park, and the Illinois Institute of Art and Argosy University both closed their doors at 1000 Plaza Drive, vacating a total of 70K SF. 

In the North submarket, LTD Commodities vacated 42K SF at 300 Tri State in Lincolnshire, and Wonderlic vacated 26K SF at 400 North Lakeview Parkway in Vernon Hills.

The vacancy rate did decrease to 22.8% in the North submarket’s Class-A sector, but that was due to the demolition of a 405K SF building at 1000 Milwaukee Ave. in Glenview.

Portions of the suburbs remain relatively healthy and active. The overall vacancy rate around O’Hare International Airport now stands at 15.39%, and the Class-A portion fares even better with a rate of 13.1%.

And the East-West submarket, which includes cities like Downers Grove, Lisle, Naperville and Oak Brook, saw several significant new leases and renewals in the first quarter, including Paramount EO’s renewal of 79K SF at 1000 Davey Road in Woodridge, and Ulta Beauty’s 70K SF expansion at Tallgrass Corporate Center in Bolingbrook, bringing its total footprint to 379K SF. The moves helped offset McDonald’s vacating 66K SF at 711 Jorie Blvd. in Oak Brook, and the overall direct vacancy rate was mostly steady at 16.7%.

Still, MBRE forecasts that the overall direct suburban vacancy rate will stay above 20% through at least 2020.

“Antiquated buildings need to be demolished, renovated, or repositioned before the suburbs can return to pre-recession market levels,” MBRE said.