Here’s the Chicago commercial real estate market’s big secret: the suburbs never went away. While it’s true that office vacancy rates hit the high 20s in 2008, the truth is that suburban absorption never faltered. In early 2014, Savills Studley reviewed all office leasing transactions from 2010 to 2013, a recessionary period for the sector. The analysis revealed that of the nearly 7.4 million square feet of deals tracked, nearly three-quarters of the moves (5 million square feet) involved tenants moving from one suburb to another.
Compare that trend to the relocations from the suburbs to the city, which totaled approximately 1.8 million square feet during the same period. The exodus of companies like Hillshire Brands and Motorola Mobility from the suburbs made it seem like the city was the only place to be for high-growth firms. The analysis also showed that firms moving from out of town to the area went to the suburbs rather than the city by a factor of more than 2 to 1: 385,000 square feet versus 160,000 square feet.
So, it’s no surprise that the suburban Chicago office market ended 2014 with the lowest vacancy rate since 2008. The 22.6 percent vacancy rate in the fourth quarter was down from 23.4 percent in the previous quarter, reports JLL.
A healthy 1.6 million square feet of suburban office space was absorbed in 2014, the highest since 2005. In fact, according to NAI Hiffman, the suburban office market absorbed more space than Chicago’s downtown market in each quarter of 2014. The truth is that suburban Chicago is part of a national trend of high-growth and blue-chip firms taking advantage of the soft market to create new iconic corporate offices. We see the same pattern in Phoenix’s Chandler and Tempe areas, the Central Perimeter in Atlanta and the Woodlands in Houston.
Savills Studley’s third-quarter office report called them “build-to-suit communities” with residential and retail offerings. Remember that the suburbs are not a single-product play either. Metro Chicago’s industrial vacancy rate, for example, fell to 8 percent, the lowest since first-quarter 2002, according to Colliers International...Chicago’s Suburban Commercial Real Estate Sector Proves Its Mettle Once Again
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National Office Sector Report (Q4 2014)