Tenants flee suburban office parks
October 1, 2012
By: Ryan Ori

Highs and lows are a part of real estate, but the ongoing recovery in Chicago differs in one big way from past cycles: Better times have yet to commute out of the city.

Suburban landlords have more unwanted office space than any major metro area in the country, concludes New York-based tenant brokerage Studley Inc. Preliminary third-quarter statistics show 24.3 percent of suburban space is available, the highest level of the 12 U.S. suburban markets it tracks. That volume of unwanted space could fill the 110-story Willis Tower 7½ times. ...

... Downtown Chicago's availability is 17.2 percent, a 7.1 percentage-point disparity that is one of the most pronounced in the nation.

The shift in demand signals a long, torturous recovery for the suburbs. Companies in some sectors have shown a willingness to pay a premium of at least 30 percent for downtown space to gain access to a young, urban workforce. The one-way recovery will reduce what suburban landlords can fetch when renting out or selling their office towers. ...

... The orphaned space is resulting in drastic measures: Northbrook-based Allstate Corp., for instance, is demolishing a 516,000-square-foot building in South Barrington it no longer needs.

Downtown has held up relatively well through a recession. Availability peaked at 18.9 percent in fourth-quarter 2010, after asking rents bottomed out at $30.31 per square foot in third-quarter 2009. Suburban availability peaked at 26.4 percent in last year's third quarter, with rents at a post-crash low point of $19.96 in the most recent quarter. ...

... Meanwhile, suburban stalwarts have slashed employee counts.

“I just think Schaumburg has never recovered from the mortgage collapse,” says suburban broker Kevin McLennan, a senior managing director at Studley. “At one point there was over 1 million feet of sublease space directly attributable to the mortgage industry.” ...

DRIVING FORCE

Chicago's public transportation infrastructure and rising gas costs have made driving less attractive, says Rick Schuham, co-leader of Studley's Chicago office. In stronger suburban areas such as Dallas, Houston and Denver, people tend to drive to work, he says.

“In the markets where everyone drives, it's a different decision,” he says. “What Chicago has and New York has is phenomenal public transportation. To get an employee from Burr Ridge to Northbrook is a challenge. It's a lot easier to get an employee from Burr Ridge to downtown.” ...

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