May 2016

Event: Illinois RE Journal’s State of the Suburban Office Market

On Tuesday, May 17th, Illinois Real Estate Journal hosted two panels covering the current state of the suburban office market. 

Panel 1: Debunking the Suburban to Urban Office Market Shift

NAI Hiffman’s Michael Flynn, SIOR and CCIM, participated in the discussion with a panel of experts, including:

  • Richard Gatto, Executive Vice President, Alter
  • David Trumpy, Senior Managing Director, GlenStar
  • Andrea Van Gelder, Managing Director Tenant Representation, JLL
  • Michael Rolfs, Partner, Hamilton Partners
  • Bryan Rosenberg, Associate Director, HFF

Highlights included:

  • Companies are looking to move downtown to tap into the large group of millennials that reside in this area.
    • Andrea Van Gelder touched on her experience with Citibank; citing that Citi wanted to move downtown to be close to the millennial population, but when they polled their current employees, less than 10% wanted to move their operations downtown.
  • Employee satisfaction and retention is becoming more important when firms are looking to relocate their office operations. HR departments now have an increased voice in these transactions to retain their employees.
  • Top level amenities are still important to tenants, but the #1 factor driving rental rates is location. Employees want to have an easy commute and they want to use alternative forms of transportation: Metra, the L, Uber, biking etc.
    • The O’Hare office market is a prime example of good transportation accessibility with the ability for employees to ride the Metra and get off the train a block away from their office.
  • Premier Class A properties are continuing to push rents upward with no sign of tapering off anytime soon.
    • Suburban Class B & C properties will continue to struggle as they cannot provide the modern amenities and property location is not ideal to meet employee needs.
    • Downtown B & C buildings have been converted to different uses to fight this, (i.e. Hospitality/Housing) but this has not been a trend in the suburban market.

Panel 2: Restructuring the Suburban Workplace: What are Today’s Suburban Tenant and Property Management Needs? 

The second panel included:

  • Jen Sweeney, Executive Director, Millbrook Properties
  • Deb Pyznarski, Senior Property Manager, Lincoln Property Company
  • Barbara Liebers, Senior Vice President/Group Manager, JLL
  • Stephen Wright, Principal, Wright Heerema Architects
  • Eric Meyers, Principal Property Management & Landlord Representation, Avison Young
  • David Narey, Vice President/Property Management, Irgens

Highlights included:

  • Suburban offices need to be able to match the energy and amenities of downtown office buildings.
    • Important amenities today are a new lobby, fitness center, café and wi-fi lounge.
      • Of these, food service is the hardest amenity to implement in suburban offices.
  • Transportation is still a major driving factor of tenant needs.
    • The need for covered parking, proximity to public transportation, and ease of biking/walking is extremely important.
  • Tenants also have demands that might be impractical. Deb Pyznarksi mentioned how the desire to turn office space into loft style space with heightened ceilings would present some challenges. The space would be costly to construct, and would also be difficult to clean.
  • David Narey touched on the current state of Medical Office Buildings.
    • Healthcare providers are looking to expand coverage by increasing their number of smaller, specialized offices and placing more medical offices in retail centers.
    • In the suburban market, we could see a decline in activity with large medical office campuses and an increase in smaller offices that are more convenient for the average consumer.

Post-Conference Insight

Michael Flynn’s key takeaways were the following: 

  • There was no counter argument from anyone that specializes in downtown leasing.
    • Every person on Panel 1 specializes in the Suburban Market.
  • Vacant Space is scarce in O’Hare, especially in properties east of River Road.
    • This gives the O’Hare submarket the most likely chance for new office development.
  • Even though rental rates are cheap in the western portion of the East-West Corridor, the premier Class A space in that area needs the right tenant. Buildings in the EW Corridor with large blocks of available space cannot be subdivided easily; the perfect tenant has to come along to make that space work.

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