February 2025
Changes to Suburban Office Coming?
Even while assessing the trends and direction of the suburban office market in 2024, one industry analyst believes the year ahead could bring some of the most significant changes since the pandemic.
Much depends on how influential the new back-to-office directive for federal government employees will be on the private sector, according to Nick Schlanger, director of research services for Oakbrook Terrace-based commercial real estate agency NAI Hiffman.
“A lot of companies look to the federal government, in recessionary times and at all times,” he said. “That kind of serves as a testing ground for the logistics.”
The likely pecking order in potential influence on current remote-working policies would see larger companies being the first to consider the federal government’s experience, and in turn provide a model for smaller firms.
“I think we are going to see a shift in those policies as the mid-size companies look to the large players,” Schlanger said.
Such changes probably wouldn’t be immediate but could be what we’re looking back at in 12 to 24 months, he added.
For now, most analysts are taking a wait-and-see approach to this new factor.
Meanwhile, 2024 brought an increase in suburban office vacancies – an all time high of 26.3%, up from 25.4% a year earlier. But Schlanger is among those whose closer looks recognized some bright spots emerging.
While the ‘flight to quality’ of the prior few years focused largely on buildings’ amenities, there’s growing evidence of opportunity for landlords of mid-size Class A and B properties that are well-managed, Schlanger said.
These are places where management staff is readily available and vacant space can be prepared and turned over swiftly.
“How buildings are managed is very important to tenants,” he said. “There’s been a shift from the amenities arms race to landlord accessibility and flexibility.”
The recent signing of Comcast and 11 more new tenants at the three-building, million-square-foot Schaumburg Corporate Center near Woodfield Mall brought the property up to 78% occupancy at the end of 2024. Commercial real estate information firm CoStar identified it as the highest occupied Class A office property in the Northwest suburbs.
Comcast, relocating its regional headquarters from larger space in OakBrook, will nevertheless be the single-largest tenant of the center with three floors totaling 61,295 square feet.
“We are now above pre-pandemic occupancy levels at Schaumburg Corporate Center, which is performing far better than its competitors,” said Michael Klein, principal of Chicago-based Glenstar, which leases and manages the office complex owned by Affinius Capital.
Klein said landing the major media company as the top tenant says a lot about the importance of management in today’s office market.
“This corporate relocation represents a major upgrade in office space and access to best-in-class amenities for the company,” he said. “Environments that make employees productive and eager to come to work are what we specialize in, and it’s rewarding to see so many corporations recognize that and choose Schaumburg Corporate Center for their office space.
Among the amenities the center provides are a 17,000-square-foot glass-and-steel atrium that hosts live music, a renovated health club, and a private dog park.
Schaumburg is Illinois’ largest hub of economic activity outside of Chicago. The village’s Economic Development Director Matt Frank said the Schaumburg Corporate Center has stood out in incentivizing employees’ return to the office.
“Glenstar has been very proactive trying to lure people back to the market,” he said.
And office providing that daytime population helps support all the other segments of the local economy.
Frank agreed with Schlanger that the current state of affairs in the suburban office market could be looked at either negatively or optimistically depending on one’s perspective. While Zurich North America no longer utilizes the whole of its iconic headquarters building in Schaumburg, that allowed such a high-quality company as Wheels, Inc. to move to the village, he said.
Schaumburg officials hope to assist the office market by reducing its obsolete properties. This includes buying a 204,000-square-foot building to demolish for the village’s next police station and nearing approval to convert a 45-year-old Class B office building across from Woodfield into a 98-unit high-end apartment complex.
But the market shows there’s still life in the older, less amenitized, but more affordable Class C office. Schlanger said the single-story office market outperformed the market at large last year.
Breaking down the total suburban vacancy rate at the end of 2024, it was 28.2% for Class A properties, 25.2% for Class B, and 11.6% for Class C.
About Hiffman National:
Based in the Chicago area, with an additional five regional hubs and 30 satellite offices, Hiffman National provides superior property management, project services and accounting services to a diverse portfolio including office, medical office, retail and industrial properties nationally. The firm’s comprehensive property management platform and attentive approach to service contributes to client NOI and has helped the firm to more than double in size in five years. Hiffman National is an award-winning company with more than 250 employees strategically located throughout North America.
About NAI Hiffman:
NAI Hiffman is one of the largest independent commercial real estate services firms in the US, with a primary focus on metropolitan Chicago, and part of the NAI Global network. We provide institutional and private leasing, property management, tenant representation, capital markets, project services, research, and marketing services for owners and occupiers of commercial real estate. To meet our clients’ growing needs outside of our exclusive NAI Hiffman territory, we launched Hiffman National, our dedicated property solutions division, which provides property management, project services, and property accounting services across the country. NAI Hiffman | Hiffman National is and award winning company headquartered in suburban Chicago, with more than 250 employees strategically located throughout North America.
