Suburban office vacancy hits 7-year low [High Vacancies for Lake County properties]
Chicago Real Estate Daily April 06, 2015 By Ryan Ori
Vacancy in suburban Chicago office buildings fell to its lowest level in more than seven years during the first quarter, providing another positive sign for landlords battered during the recession.
Overall vacancy fell to 21.3 percent during the period, the lowest since the end of 2007, according to Chicago-based Jones Lang LaSalle. Vacancy was down from 22.6 percent in the previous quarter and 24.4 percent a year earlier.
Yet it remains to be seen whether the momentum can continue, with a flurry of deals in recent quarters reducing the pipeline of large deals, said tenant broker Todd Schaefer, a senior vice president at JLL.
“The market was really on a tear all of last year,” said Schaefer, who represents tenants in the East-West corridor. “I do think there was a pent-up demand in 2014, and that got pushed through the system. The north suburbs had some significant activity and positive absorption in the past couple of months. Everything else has been stagnant in the first quarter.”
The first quarter’s three largest leases were in Lake County, topped by Baxter International spinoff Baxalta’s headquarters deal for an approximately 260,000-square-foot building in Bannockburn. The quarter’s third-largest lease involved pasta maker Barilla America, which was displaced by the Baxalta deal. Barilla is moving to a 75,620-square-foot building in Northbrook.
In another large deal, Fortune 500 company CDW leased 209,000 square feet in adjacent buildings in Lincolnshire.
Those deals won’t impact vacancy figures until the tenants move. In fact, Lake County’s vacancy rose to 29.9 percent from 24.1 percent. That’s largely the result of the 1.1 million-square-foot former Motorola Mobility campus in Libertyville being added to Lake County’s supply.
The campus, vacant since Motorola Mobility moved to the Merchandise Mart in River North in early 2014, was bought by Maryland-based real estate investor BECO Management last year. Office space owned by tenants is not included in JLL’s inventory.
COOK LOWEST, LAKE HIGHEST
After JLL’s updates to the suburban inventory, demand—as measured by net absorption, the change in the amount of leased and occupied space—rose by 110,024 square feet during the first quarter.
Cook County vacancy was the lowest, at 13.9 percent, while Lake County’s was the highest.
Overall vacancy has fallen far from the recession peak of 25.4 percent in mid-2010, but it remains above pre-recession levels of sub-20 percent. The first-quarter decline was fourth consecutive quarterly drop in vacancy.
Leasing activity still varies greatly by area, Schaefer said.
“Landlords are getting comfortable on the eastern part of the East-West corridor,” he said. “They’re pushing rents and reducing concession packages. The farther west you go, it’s still a tough time.”
The highest-quality buildings also have recovered much faster, Schaefer said.
“Class B and C buildings are definitely still having a hard time,” he said. “Tenants in Class B buildings were able to take a step up to Class A buildings and pay no more than they had been paying. Class A buildings, although they had to drop their rents, are now reaping the benefits of having increased occupancy. They’re now looking to push rents and offset some of their more aggressive deals from a year or two ago.”
Original Article at Chicago Business.com http://www.chicagobusiness.com/realestate/20150406/CRED02/150409877/suburban-office-vacancy-hits-7-year-low