For Chicago’s urban market, there are many dynamics and idiosyncrasies in play right now, and to characterize the market with any broad stroke statement would just be inadequate. Specific to the urban office sector, we have started to see an uptick of activity over the past 30 – 45 days with tenants in the market. Many of the tenants in the market today were in the market 3 – 6 months ago, but they hit the pause button with news of the pandemic.
Many of these tenants are businesses that need to maintain a presence in a physical location, and there is a need driving their search (Existing lease expiration, need to expand, etc.). Because of that need, these groups are relaunching their process. However, what we are observing is that many of these groups are taking a few steps back from where they left off 3 – 6 months ago, and they are now reevaluating. They are not only reevaluating the options they were considering, but their needs as a whole.
In doing so, these businesses are now considering options that may have been excluded, overlooked, or alternative solutions that were not originally considered.
There are many factors that are causing these real estate tenants to reevaluate, but our team is recognizing a few recurring fundamentals:
- The criteria of needs vs wants have been shifted and even reprioritized.
- Real estate costs are typically one of the top 2 – 3 line items for a company’s expenses. While navigating through the challenges that have been caused by the pandemic, and any that possibly lie ahead, many of these tenants are focusing on reducing their real estate spend.
- Companies are not only analyzing the need for employees to be at the office everyday, but they are also considering how employees function within their office space.
Based on these factors and others, these businesses have altered their original course in order to find new solutions:
- Many small, mid-sized and even larger, corporate users have made the decision they no longer need to pay a premium in order to be located at Main St. & Main St. There is still a desire to be close, but these tenants are now considering options that are located on the fringe, or outside of their original geographical parameters. In broadening their search, sometimes no more than 1/4 mile, these tenants are gravitating toward new opportunities that provide real and immediate costs savings, as much as $5 – $10 per Sq. Ft.
- We are also seeing the office user considering properties that may not be considered “traditional” office buildings, be it boutique buildings, buildings with multiple types of uses, or buildings that offer adaptive reuse opportunities.
- With the shift in priorities, more businesses are looking for criteria that was once a “want,” but now a “must have.” A few of the items we are observing are: More parking for employees, ample space for bicycles, ability to access space directly from stairs, more private restrooms, more of a horizontal footprint compared to vertical footprint, and more flexibility with their leases overall.
Our team is in negotiations with multiple groups that have a similar storyline. We are seeing more brokers and tenants that have historically not considered locations outside of the traditional downtown submarkets, but now focusing heavily on some of these emerging neighborhoods.
Based on where we are today and the uncertainty that still is ahead, we feel strongly this trend will continue, and emerging submarkets around Chicago will see an upward trend.
The above was written by: Zach Pruitt, Principal @ Cawley Commercial Real Estate