Suburban Office Vacancy Hits Lowest Level in 14 Years

By: Ryan Ori, Crain’s Chicago Business Suburban Chicago office landlords didn’t sign any blockbuster leases in the fourth quarter, but they still had reason to toast 2015. Overall suburban vacancy fell to 18.5 percent in the period, down from 19 percent in the previous quarter and 22.6 percent a year earlier, according to Chicago-based Jones Lang LaSalle. Vacancy, which climbed all the way to 25.4 percent in 2010 during a downturn, is at the lowest level since third-quarter 2001. “There weren’t a lot of huge transactions in 2015,” said office tenant broker Henry Lee, a JLL vice president. “In 2016, it’s going to be similar. I think there will be singles, doubles and triples that will impact absorption.” Net absorption—the change in the amount of leased and occupied space, a key measure of demand—totaled almost 1.3 million square feet in 2015. That was the second-highest volume since 2005, trailing only 2014’s 1.6 million square feet. The entire suburban office market has just over 97 million square feet of space not owned by occupants. The improvement belies the perception that the suburban office market is in a prolonged state of decline. Several prominent suburban companies signed deals to move their headquarters downtown last year, including Kraft Heinz from Northfield and Motorola Solutions from Schaumburg. Omaha, Neb.-based ConAgra Foods is also moving to Chicago, a deal that includes workers in Naperville shifting downtown. Many other companies that remain based in the suburbs are establishing satellite offices downtown. Yet the suburban office market has improved as longtime businesses have boosted hiring and added space. “I think there’s a misconception that all suburban companies are moving downtown,” Lee said. “On the flipside of the coin, there is no shortage of companies in the suburbs that are expanding and choose to grow in the suburbs and create a smaller satellite office downtown. There are plenty of companies growing in the suburbs.” Leases are not factored into vacancy statistics until tenants move. Yet one of the largest fourth-quarter deals, grocery-store chain Aldi’s nearly $5 million acquisition of an 82,000-square-foot building at 1245 Corporate Blvd. in Aurora in October, immediately removed a vacancy from JLL’s statistics because it is now owned by a user of the space. Vacancy numbers only include buildings that are leased out to tenants. The German grocery store chain, whose U.S. headquarters are in nearby Batavia, plans to put its information technology department in the Aurora building, the Aurora Beacon-News reported in August. Previously signed deals affecting fourth-quarter numbers included Vernon Hills-based technology products company CDW’s move into 209,000 square feet in the 25 and 75 Tri-State International buildings in north suburban Lincolnshire, according to JLL. Higher-end buildings continue to perform better than others. Class A properties had a 15.8 percent vacancy rate in the fourth quarter, versus 21.8 percent for Class B buildings and 17.3 percent for Class C, according to JLL. “Big blocks of true Class A space have come down over the past 24 months,” Lee said. “Class B, there’s no shortage of opportunities out there.” Overall vacancy remained highest in the Lake County submarket, at 22.6 percent, down from 24.2 percent in the previous quarter. North Cook County remained the lowest, at 9.9 percent, down from 12.2 percent. All landlords face challenges in 2016, as large blocks of space remain plentiful in many submarkets. In Lisle, truckmaker Navistar International in November said it seeks a tenant to sublease half its 1.2 million-square-foot headquarters in the western suburbs.