November 2017

Trophy vs. Class A Office in the North & Northwest Suburban Markets: Where Are Tenants Going?

By Shane Murphy – Associate, NAI Hiffman Office Services

OVERVIEW

Office buildings can range from low to high-end, to even higher end, based on age of the building, technological capabilities, HVAC system quality, location, maintenance, and amenities.

TROPHY

Trophy buildings fall into a small, unofficial class of investment-grade properties that lead the industry in utilizing cutting-edge technology, high-end design, polished finishes, stand-out architecture and environmental sustainability.

CLASS A

Class A properties are the second tier of spaces competing for premier office tenants, in central locations, with top notch characteristics. These are well-capitalized or institutionally owned properties that are not quite the profile and total package of trophy buildings, but have enhanced tenant experiences, putting them into the Class A category.

While demand for trophy office buildings has historically led the market out of market dips, with the maturity of the economic recovery we are seeing an increase in companies leasing and renewing big blocks of Class A space instead. With the addition of new and unique tenant amenities, programs, and events, Class A office activity has begun to outpace Trophy absorption in Chicago’s North and Northwest Suburban office markets.

RESEARCH

The North Suburban office market is made up of nearly 17.5 million SF of Class A office buildings with the Northwest Suburban market adding an additional 18.4 million square feet of Class A office buildings. Looking at the most recent 15,000 + SF lease transactions in the North and Northwest markets, only 28.4% have transacted at Trophy buildings.

Some of these recent major Trophy and Class A transactions include:

THE TENANT EXPERIENCE

Beyond the standard amenities like food courts and fitness facilities, well-capitalized or institutionally-owned Class A buildings in the suburbs have started to win tenants over with experiences that have not been provided in the past. Some new and unique tenant programs being provided include:

bike share programs
rotating pop-up lunch vendors like Fooda
high-tech conference facilities

transportation services to and from public transit
on-site daycare
interactive tenant events promoting community
valet car detailing & washing

SUMMARY

In the past, large tenants may have been drawn to North and Northwest Suburban Trophy offices for the high-profile image the property provided their company along with the high-end tenant experience for employee satisfaction. With Class A office activity outpacing trophy property absorption, we are witnessing premier tenants becoming drawn to well-capitalized Class A buildings as they are providing a new and unique tenant environment, just like Trophy buildings have done for years, but at a more competitive price point.