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.” ...
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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