Suburban Office Vacancy Hits Another Record High
The suburban office market is still burdened with a lot of obsolete office parks and has struggled to fill empty spaces for years, but the coronavirus pandemic sent its vacancy rate even higher. The rate began a steep climb in Q2 2020 and just hit 24.2%, according to a Q1 report by Colliers International. All suburban sectors took hits, including Class-A office developments, where the vacancy rate increased to 25.7%.
The picture is not entirely bleak, according to Colliers. Rental rates did not decline and instead held steady at $22.03 over the course of the pandemic. The firm forecasts that rents will likely stay flat this year, but landlords will also likely be forced to boost concessions if they want to attract tenants.
There was also a noticeable pickup in leasing activity. Eight leases larger than 15K SF were signed in the suburbs during Q1, Colliers found. Several were new leases for Class-A space, including Kellogg Co.'s agreement to occupy more than 42K SF in The Shuman at 263 Shuman Blvd. in west suburban Naperville.
It was the largest suburban lease of Q1 and might also be the most significant. Suburban developers have high hopes for projects like The Shuman, one of several 1980s-era complexes recently renovated and outfitted with the type of amenities typically found in Class-A high-rises in downtown Chicago.
Franklin Partners in 2018 purchased the facility, which was built for AT&T in 1987, and Wright Heerema Architects principal Roger Heerema redesigned it into a multi-tenant building, adding a grand staircase to the main lobby and atrium, a well-lit lower level with a coffee bar, a full fitness club and coworking lounges.
Other new suburban leases include Costco's deal to take 30K SF in Schaumburg's Woodfield Preserve Office Center at 10-20 North Martingale Road and Goosehead Insurance Agency's decision to take nearly 18K SF at 6300 North River Road in Rosemont.
But the most activity was seen within buildings that offer smaller, plug-and-play spec spaces, typically less than 10K SF, according to Colliers. That activity should continue in 2021 as more firms seek alternatives to traditional office spaces.