Make no mistake — the suburban office market has been depressed for years. But there’s life in those important clusters of jobs beyond the city limits.
It’s not an easy bet financially, but property owners are adapting to stubbornly high vacancy rates. In some cases, that means demolishing an older office building that has lost appeal and converting the property to something with greater demand, such as housing or industrial use. For others, it means fixing up the place, adding features to appeal to workers who have grown comfortable clocking in from a couch at home.
Real estate brokers call the trend a “flight to quality,” or a preference companies show for newer buildings with the latest amenities. It also might be called “survival of the fittest.”
An analysis by real-estate firm CBRE looked at all office leases covering at least 20,000 square feet in the Chicago suburbs going back to April 2020, just when the pandemic upset daily lives. The researchers found nearly half of those tenants filled space built or significantly renovated in the prior five years, a big chunk of business for properties representing just 4% of the suburban market.
An example of the “fix it up” approach is the two-tower Woodfield Corporate Center at 425 and 475 N. Martingale Road in Schaumburg. The complex, in a prime location at I-290 and Higgins Road, dates from the 1980s and is the work of acclaimed architectural firm Holabird & Root.
The owner backed several upgrades: changing the tenants’ café and lounge, upgrading the kitchen equipment and making the seating more comfortable.
Dan Graham, a senior vice president at CBRE, said the improvements will help tenants retain talent. “Most tenants are looking to manage their efficiency and their footprint. The landlords that have seen the most success are the ones that have reinvested in their buildings,” said Graham, who handles leasing at the property.
Woodfield Corporate Center is about 75% leased, typical for the market. Tenants include Thermos and OMS National Insurance. The owner, New York Life Real Estate Investors, carries no debt on the property, which helps it offer attractive leases, Graham said.
Asked if there’s still too much office space out there, Graham said in the northwest suburban market where he specializes, about 10% of the total 27 million square feet is slated to be redeveloped into something else — homes, warehouses, maybe a data center. “The life cycles of some office buildings are coming to an end,” he said.
Just north of Woodfield Corporate Center is 3800 Golf Road in Rolling Meadows, where the former Atrium Corporate Center sits on 40 acres. It was the home of 3Com. Brennan Investment Group has acquired the property and plans to demolish the building to create a 600,000-square-foot industrial park. Plans are in the early stages but the project has the backing of Rolling Meadows officials.
Lush corporate campuses today look more like extravagance from the last century. The Allstate buildings in Glenview are being taken down for a logistics hub. Bridge Industrial wants to turn the Baxter International campus in Lake County into an industrial park, although the proposal has drawn opposition from neighbors worried about noise, pollution and truck traffic.
There’s been a different approach at a former AT&T research center in Hoffman Estates, where a developer has reconfigured the offices for smaller tenants, added dining and entertainment and ultimately plans townhomes as part of a live-work “metroburb” concept.
Housing, in fact, will have a role in any suburban office rebound. The two markets bolster one another. New home construction in the suburbs has been slow since the subprime mortgage crisis of 15 years ago.
Things may be changing, though. In an announcement that sounded straight out of 2005, a development firm connected to Chicago’s ultrarich Crown family has said it plans a 760-acre community in Sugar Grove, about 45 miles west of Chicago. It would be built at I-88 and Illinois Route 47. Teri Frankiewicz, chief operating officer at Crown Community Development, said the plan could include 1,500 homes ranging from single-family properties to apartments. Businesses, parks and a future village hall could be in the mix.
“This Sugar Grove project is just what the region needs,” said Eric Doersching, CEO of Tracy Cross & Associates, consultants to homebuilders. He said despite fluctuations in the office market, overall suburban jobs have grown, supporting demand for both for-sale and rental housing.
Add it together and you get a suburban development picture that’s looking its brightest in years.
