For investors, tenants, and buyers the Lake County suburban office space market could be on the verge of recovery. Q4 of 2018, the Chicago suburban office vacancy rate fell to 23.3 % from its peak in 2010. Moreover, some pockets and submarkets are significantly outperforming the office sector as a whole. Two significant drivers of declining suburban vacancy rates are a decreased supply of functionally obsolescent office space and leasing spurred by reinvestment.
Decreasing Supply of Office Space
As landlords have experienced high vacancy rates since the great recession, investors are reevaluating their property holdings. The supply of outdated office space has inflated vacancy rates in the suburbs for over a decade. As a result, landlords are beginning to demolish and redevelop obsolescent office space in suburban Chicagoland. Following the trend, more than 1 million square feet of office space was removed from the marketplace in the fourth quarter of 2018. Although the shedding of more Class B and obsolete space may be required by investors, nonetheless the office market seems to be closer nearing supply and demand parity.
Reinvestment in Class A Office Space
Unlike landlords demolishing their suburban office spaces, some investors are reinvesting in their buildings. The future of Class A suburban office includes upgrades and amenities to attract a younger and more talented labor pool. Accordingly, today’s suburban office tenant demand more from their workspace. By risking millions of dollars investing in new amenities and building features, some landlords look to meet the requirements of more demanding tenants. For landlord’s going out on a multi-million dollar limb it can be a big risk. However, as demand in the office space market continues to evolve, investors are either realizing the necessity of reinvesting or demolishing their office spaces to keep up with market demands.
What Does Market Mean For Tenants?
The current state of the office market gives tenants the opportunity to find great value in the suburban office market. Tenants currently looking in the marketplace can find opportunity in terms of price in comparison to urban spaces. Therefore, for tenants looking at suburban satellite offices, the suburbs offer businesses great value per square foot. Besides just value, now is the time to look at suburban office space with in-demand amenities. Accordingly, prospective tenants have the opportunity to improve from their current workspace in the soft market. So for tenants unsatisfied with their current space, this is the time to act! In conclusion, as we are at the front end of the redevelopment trend, now is the best time to find the workspace and deals that best meet your business’s needs.
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