Vicki Noonan Forecasts The Future Of Chicago Office Real Estate
The past month has been a whirlwind for Cushman & Wakefield managing principal Vicki Noonan, one of our panelists at Bisnow’s Eighth Annual State of the Chicago Market event Oct. 18.
Vicki (right, with Kensington Realty Advisors' Kelley Smith and MB Real Estate's Ann Tomlinson) moved to Cushman & Wakefield after a 38-year career at Tishman Speyer, where she rose through the ranks from an administrative assistant to heading the leasing team for Tishman’s 9M SF portfolio in Chicago and Milwaukee. Vicki took some time from getting her bearings as Cushman’s new Chicago market leader to share some of her observations of the metro office landscape.
1. Shadow Space Is Growing
Vicki says that the CBD, when healthy, can support 2M to 3M SF of new office delivery. There is 3.5M SF in the pipeline, but there’s a bigger concern about shadow space. Vicki estimates the CBD has almost 5M SF of it in large blocks alone. And that number will grow, as more companies are vacating their offices for smaller footprints in new buildings. Example: CNA’s existing HQ (shown) will come online when it moves into the new CNA Center at 151 North Franklin.
2. The Suburbs Are Increasingly Stable
For all the talk about how Millennials are driving the changes in the office environment, Vicki says to keep an eye on the workforce demographic in its mid-30s, as they’re beginning to settle down and marry. These workers view the suburbs as a model of stability for raising families, and the burbs offer other advantages like well-funded public school districts and cheaper mortgages. For those workers, companies with HQs along train lines and highways will continue to do well. Office vacancies in these select markets are in steady decline, while rents are rising slightly.
But landlords need to take a page from what’s successful in the CBD, and proactively transform their office assets into all-inclusive live/work/play environments. Vicki says there are markets that already do this. O’Hare has a robust shuttle system, as does Lisle. Shuttle buses are the future. And, they may help solve the suburban parking space dilemma. Vicki noted that ample parking continues to be a challenge for some suburban office assets that don’t have the infrastructure in place to accommodate increased on-site parking demands.
3. There's An Appetite For Suburban Build-To-Suit
Vicki says the notable opening of Zurich Insurance’s new North American HQ shows there’s a need for suburban build-to-suit. The key is finding the land. Thankfully, there’s plenty to be had in the larger campuses like Motorola Solutions in Schaumburg (where Zurich built its HQ), Motorola Mobility in Libertyville and the foreclosed Lakewood Center in Hoffman Estates. Vicki says these larger campuses are ideally suited for mixed-use. Another option in play in the burbs: adaptive reuse, which was something Zurich considered in its old HQ.
4. Demand For Co-Working Space Could Be Recession-Resistant
Although there was some concern among the panelists at our State of Office event in May about the large footprints being leased by WeWork, MakeOffice and other national shared space giants, Vicki says there’s still demand for co-working spaces among Chicago’s growing startup community, where firms don’t want to make investments in permanent office space, and blue chip companies that are reserving space for traveling employees, making it easier for them to have a touchdown space when they’re on the road. If the office market does begin to take a downturn, Vicki says co-working space could become more appealing because the lease demands are short-term, fully functional and operational. Vicki says to keep an eye on the private investors backing WeWork, et al., as they’re clearly paying attention to the market.
5. New Markets Mean More Vacant Space
The Chicago office landscape has new markets that would have been unheard of years ago. Today, River North, Goose Island, River West and Fulton Market are among the hottest office submarkets in town. Vicki believes those four markets will increase total office supply by 3M SF, resulting in a lot of vacant space in 2018 unless leasing activity picks up significantly. Add to that the development opportunities in the Clybourn Corridor and any office component in the Old Main Post Office redevelopment, and we could see as much as 10M SF in additional inventory in the overall CBD over the next five years.
To learn more from Vicki and our other expert panelists, attend Bisnow’s Eighth Annual State of the Chicago Market event, 7am Tuesday, Oct. 18, at NewCity. Register here.