Contraction Continues to Drive Office Leasing Activity
As published in The Real Deal’s “‘Definitely not robust:’ Suburban Chicago’s office market driven by contraction”
By Rachel Herzog
Landlords are feeling the effects of shrinkage in suburban Chicago. Some of the market’s biggest leases in the third quarter marked contractions for tenants, and brokers expect more are on deck.
Deluxe Corporation’s 12-year lease of 46,000 square feet at the Integris Ventures-owned building at 5450 North Cumberland near O’Hare International Airport was among a number of deals in which tenants cut their real estate footprints. The Minneapolis-based check-processing company consolidated its two Chicago-area locations in its move, comprising a smaller footprint overall.
“I think we’re going to see a lot of right-sizing happen” as flexible or hybrid work schedules crimp a full return to offices, said NAI Hiffman’s Jason Wurtz, who represented building owner Integris.
Most leasing activity in the Chicagoland suburbs consisted of companies either renewing their leases or decreasing their square footage, according to Newmark’s third quarter office market report. “It was definitely not robust,” Wurtz said.
Yet compression could ultimately benefit certain submarkets such as O’Hare, if companies want a centralized location that’s convenient to both downtown and the suburbs, Wurtz said.
Canadian software company Pivotal Corporation inked suburban Chicago’s largest new lease last quarter, for 100,000 square feet at the HUB 1415 building at 1415 Diehl Road in Naperville, and marketing agency Club Colors moved from Schaumburg to occupy more than 52,000 square feet in Bell Works Chicagoland at 2000 Center Drive in Hoffman Estates. Chicago’s Distribution Solutions Group also took 71,000 square feet in Triangle Plaza at 8770 West Bryn Mawr Avenue in the O’Hare submarket.
Vacancy in the suburbs rose 10 basis points to more than 25 percent last quarter, after remaining unchanged in the second quarter. Sublease availability increased by about 75,000 square feet last quarter, with Caterpillar contributing 116,000 square feet to the increase with an offering in a Shaya Prager-owned Deerfield building, after the construction equipment company announced it was moving its headquarters out of the Chicago area.
Rental rates, however, rose slightly to $23.62 per square foot, Newmark said. Average asking rates in the suburban market have stayed close to that this year.
Among suburban submarkets, I-88 East and O’Hare had the lowest total availability rates, with 25.3 percent and 27.3 percent respectively. The I-88 West submarket was close behind with a total availability rate of 28.1 percent. The Northwest submarket had the highest availability rate of 41.2 percent.