During the final three months of 2019, the moves of four big Chicago-area suburban tenants into revamped, modern suburban office space contributed to a positive net absorption of 94,356 square feet in the fourth quarter, an improvement from negative 132,580 square feet in the third quarter. Class A buildings were largely responsible for the rebound, with positive net absorption of 292,903 square feet in the fourth quarter, a two-year high, according to the newly released “Fourth Quarter 2019 Market Peek” from NAI Hiffman, the largest independent real estate services firm in the Midwest.

“Pockets of the suburban market are very stable and healthy; the overall suburban vacancy rate has been hovering in the mid-18% range for the past few years, absorption was positive last quarter and asking rents were up,” said Patrick Kiefer, executive vice president of NAI Hiffman. “The East-West Corridor, which includes Oak Brook and Oakbrook Terrace, is an area we’ve dubbed ‘ground zero’ for Class A leasing activity, as vacancy is around 10%, with record-high net rents of $23 per square foot. Modern, amenitized space is what many users want, so updated buildings in the best locations are outperforming the rest of the market.”

Overall Chicago-area suburban office vacancy crept up in 2019 from 18.17% at the end of 2018 to 18.68% at the end of last year. Reasons for the increase include the continued migration of companies downtown, a trend that has created more than 5.6 million square feet of vacancy in the suburban office market since 2015. Despite the fourth-quarter addition of the 332,000-square-foot former McDonald’s headquarters to Oak Brook’s office inventory, the vacancy rate in the East-West Corridor held steady at 16% at year end, essentially unchanged from the 16.05% recorded for the same time period in 2018.

As a sign of the market’s resilience, plans are underway to convert the former McDonald’s site into a $500 million mixed-use complex with office, retail, hotel and multifamily components. The redevelopment may be an impetus for other similar projects in the suburbs, especially as millennials consider relocating there as they start families, according to Kiefer.

“The McDonald’s campus transformation may have a domino effect, spurring more developments geared toward the millennial generation,” Kiefer said. “Millennials will consider working in places like Oak Brook if they can do so in a trendy, mixed-use environment similar to what they might be leaving downtown. The McDonald’s campus used to have a security gate that monitored who came and went. The future of this site will be the opposite; it will be secure but much more open, with places to hang out around the pond and live music and restaurants.”

More landlords are looking to enhance the marketability and profitability of their own assets by revamping existing space or, in some cases, convert all or a portion of older buildings into new uses.

“Many of the nicest suburban buildings are 10-15 years old,” Kiefer said. “For that reason, we might see more multi-tenant office development in the near future, as needs are much different today than they were 15 years ago. Highly efficient building layouts with open floor plans allow suburban employers to put more people into less space, justifying a move and higher per-square-foot rent, which is still going to be lower than comparable space downtown.”

Other suburban office market highlights from the Fourth Quarter Market Peek include:

• Class A asking rents finished 2019 at $26.92 per square foot, up from $26.49 at the end of 2018.

• Leasing activity surpassed 1 million square feet for the fifth quarter in a row. New leases and lease expansions stood at 1.2 million square feet in the fourth quarter.

• In the fourth quarter, the largest tenants taking occupancy of Class A space included: Edward-Elmhurst Health in Warrenville (190,000 square feet), Centene Corporation in Burr Ridge (90,000 square feet), The NPD Group in Rosemont (20,000 square feet), and Elkay Manufacturing in Downers Grove (18,000 square feet).

For additional research from NAI Hiffman, and to download a full copy of the report, visit the company’s website. 

About NAI Hiffman:

NAI Hiffman is the largest independent real estate services firm in the Midwest, providing leasing, management, tenant representation, capital markets, project management and marketing services for institutional and private owners and occupiers of commercial real estate. It currently leases and manages an 89+ million square foot portfolio of more than 700 commercial properties throughout the region, with a primary focus on metropolitan Chicago.  With more than 200 employees, NAI Hiffman is the Chicago-area representative for NAI Global, the world’s largest managed network of real estate service providers, with more than 6,700 local market professionals managing more than 380 million square feet of property. NAI Global has more than 375 offices strategically located throughout North America, Latin America, Europe and Asia Pacific. For more information, please visit www.hiffman.com.