My generation thought the downtown real estate boom would never end.
Now that it has, we should ponder the consequences.
But before we gauge the fallout, let me explain how we could have been so naive. You can`t blame us, really. It was all we had known.
For those of us younger than 45, downtown Chicago has been growing all our adult lives. Our elders cautioned that the city once endured three decades without adding a major new office skyscraper, a dry spell that wasn`t broken until 1955 and the arrival of the Prudential Building.
But to us that was ancient history. The evidence before our eyes was of growth, irreversible and spectacular growth. Chicago`s skyline seemed always topped by two or three construction cranes. A walk through the Loop always meant detours through wooden construction barricades. There was always the roar of jackhammers and the smell of concrete dust.
We weren`t imagining things. Statistics show that downtown Chicago virtually doubled in size in the `70s and `80s. Beginning with the opening of the John Hancock building in 1969, we added 2 million to 3 million square feet of office space every year. The Sears Tower (1973) alone contained 4 million square feet, or more ”Class A” space than exists in the downtown of Sacramento or Buffalo. The inventory of office space soared to 115 million square feet, second only to New York City`s.
We took pride in our new buildings. There were some clunkers, but a lot of them were unqualified architectural hits. Local architects such as Bertrand Goldberg, Adrian Smith and Helmut Jahn rode the Chicago boom to international stardom. As the city`s architectural fame spread, out-of-town heavies such as Philip Johnson, Riccardo Bofill and Kenzo Tange vied to have their work represented in Chicago. Planeloads of wide-eyed tourists came here, not for the bad weather or losing ball teams, but to snap pictures of Marina City and the State of Illinois Center.
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But the aesthetics were icing on the cake. The real payoff was in jobs and tax dollars. Though the city steadily lost jobs to the suburbs in the two decades just past, downtown more than held its own. The focus of a strong radial transit network, downtown hung onto 60 percent of the region`s office market, even as ”sprawl” cities such as Los Angeles and Houston became also- rans to their suburbs. As for property taxes, the new glass towers cushioned the loss of the steel mills, stamping plants and stockyards. Though less than 2 percent of the city`s land area, downtown accounts for more than a third of the city`s property-tax base.
There were slow periods, of course. Every three or four years-often after a big tower or two would come on line-the vacancy rate would shoot up to 10 or 12 percent. Developers would back off for 18 months or so, long enough for downtown`s job machine to fill the space.
Then the cycle would start again, each more robust than the one before. It was a no-brainer, really. Downtown land was plentiful and cheap compared with hemmed-in cities such as Boston or San Francisco. Zoning approvals were laughably easy to get. Developers and architects got fat upfront fees. The big banks, insurance companies and pension funds-joined in the `80s by the Japanese and Dutch-discovered that holding big mortgages and/or ownership positions was more lucrative than low-yielding bonds.
The party roared on until 1990. That`s when the revelers looked up, only to discover that the production of new office space had badly overshot demand. Next came the recession of `91, a downturn that has hit hardest at the white- collar service industries (law, consulting, advertising) that filled the skyscrapers.
This time, however, there will be no quick rebound. The office vacancy rate in downtown Chicago is nearing 20 percent even as more new skyscrapers
(financed just before the bust) near completion. Rents are sinking as savvy tenants learn to play one desperate landlord against another; two months` free rent is a standard incentive. Sale prices for office buildings, which had reached $300 per square foot three years ago, have plunged to less than $100. Trying to cut their losses, some lenders are legally foreclosing, though more are quietly ”taking back” buildings by informal means.
So deep is the office glut, and so shallow the demand, that several experts predict that no more office buildings will be erected in downtown Chicago for the rest of the 1990s.
Imagine that! No more new office buildings this century!
The consequences? Construction workers and draftsmen are being idled. The city and schools will lose property taxes as owners appeal to have their assessments rolled back to reflect lower rents and vacancies. Banks and insurance companies will write off more bad loans, crippling their ability to make new, good loans.
On the positive side, cheap rents will help spur the recovery of some of our service industries, and city planners will get an opportunity to reform Chicago`s archaic, 35-year-old zoning code.
But that`s no consolation. Not when we are losing one of the things Chicago does best.