Suburbs Back On The Map, But Landlords Have A Lot Of Work To Do
Covid-19 hit the suburban office market just as hard as it hit the downtown, sending an already high vacancy rate into record territory at more than 25%, and no one is completely certain what's going to happen as offices reopen and workers return.
"The market has been turned upside down," Somerset Development's Vice President Ken Gold said last week during Bisnow’s Future of the Chicago Suburbs in-person event. "Anybody that says they know what's going on is full of it."
Even so, Gold and other providers sense some opportunities in the new topsy-turvy landscape.
By emptying out downtown and keeping many suburban commuters at home for more than a year, the coronavirus pandemic may end up causing many of those workers to stay home — if not permanently, then at least a few days a week. Zoom and other online meeting technologies, now in widespread use, have made that option feasible.
Companies have found they don't need people in the offices five days a week, and that may lead many firms to rethink their footprints, perhaps establishing flex space in the suburbs, while keeping downtown spaces for city dwellers, according to Wendy Spreenberg, president of Yes! Your Exceptional Space, a Chicago-based workplace design firm.
That would bolster long-term demographic trends some landlords have been banking on, Glenstar Managing Director Bill Saviski said. The pandemic led to a rush of suburban homebuying. Although the city filled up with millennials in recent years, that group is aging and already forming families, which should draw even more out to suburban residences, with companies looking to hire in their wake.
"I think the pandemic just accelerated this trend," Saviski said.
His firm has about 3M SF in its suburban portfolio, including Continental Towers, a 911K SF, three-building complex along I-90 and the site of Bisnow’s conference. Glenstar acquired it half-empty in 2013, poured more than $20M into renovation, and eventually brought occupancy up to 93%.
Both Gold and Saviski said tenants seem ready begin hunting for spaces again, but a lot of uncertainty remains.
"We're seeing activity, but for every 10 [potential] deals, seven are really just out there kicking tires because they don't know what their needs are, or what they're going to do," Saviski said.
When the pandemic struck, Somerset was set to begin opening to tenants its new BellWorks Chicagoland complex in suburban Hoffman Estates, a former AT&T campus that it acquired vacant in 2019. The crisis curtailed many tenants' plans to move or even check out new spaces.
But earlier this month, Somerset announced it had clinched a deal with Platinum Home Mortgage for 22K SF at Bell Works Chicagoland, its first long-term deal at the complex.
"We've been a big believer in the suburbs all along," Tucker Development CEO Richard Tucker said. His firm has a mixed portfolio of mainly retail and residential properties across both city and suburbs.
It's not necessarily going to be easy to attract tenants to the suburbs, though, he added. Many residents and shoppers now want dense, urban-style environments, even in the suburbs, and successful properties will provide that environment.
After a long Covid-related delay, Tucker Development is about to start building District 1860, a three-building complex in suburban Lincolnwood on the former site of the town's famous Purple Hotel. It will have a grocery, restaurants and other retail, as well as a 300-unit apartment building and, possibly, a hotel.
"That is a project that will bring an urban environment to the suburbs," Tucker said.
Heerema also said developers and owners may need to do more if they expect to bring office users back. He's noticed that one of the many reasons people have come back to his own office this summer, if only for a day, is when it makes it more convenient to attend socially oriented industry events.
"We need to take a lesson from that and make the office more of a destination," he said, adding companies should be prepared to hold such social events and activities regularly.
"We're all going to have to work a little harder at attracting people," he said.