If you examined the office markets in downtown Chicago and the suburban nodes and were inclined to see only the positive or negative, you would have a lot of evidence to go on.
Let’s say you wanted to make the boosterish case for the business climate. The construction zone known as Fulton Market gives you all the clues of urban vitality that you need with companies young and old, and frequently new to the Chicago area, flocking to it.
Or if you came to bury Chicago’s economic outlook rather than praise it, you would cite the high office vacancy rates, 20% at least and at or near record highs depending on the real estate firm doing the measuring. You would throw in cutting references to crime and to Boeing Co. moving its headquarters.
The truth includes all those things. Downtown Chicago and suburban office markets have an identity crisis like in other major cities. Almost two-and-a-half years into the pandemic, nobody is sure about its lingering effects on congregate work settings. Surveys have shown bosses want people back together, but will workers used to the end of daily commutes answer the call? Many say no in those same surveys. A labor shortage figures in the equation and companies are responding with flexible policies. Some are toying with going all-remote. The changes at work suggest even corporate headquarters could cease to mean much. “The workspace is becoming just a meeting space,” one executive said.
It’s hard to generalize because situations differ from company to company, and within departments of a company. But Fulton Market is hot because it’s drawing employers eager to get a young, tech-savvy workforce, the demographic that most wants face time in the office for networking and socializing. With lounges and workout rooms in the building and plenty of restaurants nearby, the commute from a close-by trendy neighborhood looks worthwhile.
Elsewhere, different factors apply. A case in point is Here Technologies, a location data platform with a principal office at 425 W. Randolph St., the non-vanity address for the building Boeing is in. Spokesman Jordan Stark said about 600 staffers are assigned to Chicago and business is good, so that number is not being reduced. Yet, he said the company has made nearly half of its 275,000 square feet available for sublease. With hybrid work, it’s no longer needed, he said. Here’s departments have their own “dedicated time to meet in-person for that essential connection, collaboration and creativity,” he said. Most of the week, employees can be at home or somewhere else they like. “The hybrid approach reflects our operations as a global tech company and the future of work,” Stark said.
Sublease supply, shadow dead space, has been high during the pandemic. A report by the tenant representation firm Savills said downtown subleases totaled 5.8 million square feet in 2022’s first quarter — think of it as one and a quarter Willis Towers.
AT&T, traditionally a large office user in Chicago, also is consolidating. Spokesman Phil Hayes said AT&T is moving into space it currently leases and leaving its longtime address of 225 W. Randolph St. He did not give details.
Michael Silver, chairman of Vestian Global Workplace Solutions, said he feels the worst is yet to come for the office market. He said clients he advises are looking at space reductions of 30% to 50% when it comes time for lease renewals. Robert Sevim, vice chairman at Savills, has a mixed view, noting that downtown leasing reflects a “flight to quality” in new buildings with the latest features. That’s good for Fulton Market and towers along or near Wacker Drive; bad for older buildings in the Loop, so-called Class B properties. “What to do with the Class B buildings is the riddle that has to be solved,” Sevim said.
In the suburbs, the old-style corporate campus reeks of corporate excess. Baxter International is putting its Deerfield campus up for sale, while Allstate sold its Northbrook grounds to a warehouse builder and intends to make do in a mundane building downtown. Suburban tenants continue to “rightsize,” according to real estate firm Jones Lang LaSalle. It said companies lately relocating to reduced space include Health Care Service Corp. in Downers Grove and CVS Caremark in Northbrook.
As for headquarters, Boeing said it was moving it out of Chicago, then insisted little would change. A spokesman said more than 400 employees would remain here and that Arlington, Virginia, was gaining only the offices of the CEO and chief financial officer. He said telecommuting makes it all possible. The office space here is expected to shrink.
It’s sounding like the headquarters can be wherever the C-suite leaders hang out, far from key functions. How about a posh seaside place where there’s no state income tax? Anyone for incorporating at Mar-a-Lago?