JLL reported that suburban office demand grew slightly in the fourth quarter. Net absorption—which measures the change in the amount of leased and occupied space compared with the previous period—rose by almost 75,000 square feet, marking the third consecutive quarter that the metric was positive. Total net absorption for 2022 was up by 37,000 square feet, a sharp improvement after a two-year stretch that saw the suburbs lose a staggering 2.8 million square feet of tenants.
But the late-year rally still wasn’t enough to bring down vacancy. JLL also added the former McDonald’s Hamburger University building at 2715 Jorie Blvd—now dubbed Oak Brook Reserve—back to its market inventory after a major renovation. Tech consulting firm BDO Digital moved in, but the vacant space in most of the property contributed to the rise in overall vacancy, according to JLL.
High vacancy and lingering questions about how much more space-cutting is still to come have pushed many landlords to the financial brink, especially with rising interest rates making it more costly for owners to refinance their properties. For companies hunting for space, landlords’ financial health and the debt tied to buildings are becoming bigger points of discussion as they try to determine whether owners will be able to hold up their end of deals, Van Gelder said.
“There’s a fear that landlords (who are facing significant debt trouble) are not going to be delivering the same amount of concessions,” she said, noting she gives clients “an understanding of the landlord’s position in the building and how likely they are to be able to follow through on their promises.”
Some recent transactions showing how badly suburban office property values have been devastated might give those tenants reason to be concerned.
The vacant former CVS/Caremark office building at 2211 Sanders Road in Northbrook and mostly-empty office properties at 231 N. Martingale Road and 1600 McConnor Parkway in Schaumburg were all recently sold for fractions of their pre-pandemic values. Even the nearly-full office building at 909 Davis St. in Evanston was sold last month for $28 million, well below the $35 million it sold for in 2011.
Separately, the owner of an office property at 3800 Golf Road in northwest suburban Rolling Meadows anchored by Capital One was hit with a $26 million foreclosure lawsuit earlier this month as the credit card giant scales back and consolidates its Chicago-area offices downtown.
Yet there have also been some green shoots, particularly for top-tier, or Class A, office buildings. Such buildings accounted for 70% of all positive net absorption in the suburbs in 2022, according to JLL. In one of the largest suburban office leases in recent months, AIT Worldwide Logistics inked a deal for nearly 57,000 square feet at 2 Pierce Place in Itasca—the highly-renovated former Arthur J. Gallagher headquarters—where AIT will relocate its main office later this year.