While plans for office buildings downtown are mostly gathering dust after being unrolled earlier this year with much fanfare, there seems to be no stopping the momentum of suburban office development.
The announcement earlier this week by Houston-based Hines Interests LP that it is building a 210,000-square-foot office structure on former McDonald’s Corp. property in Oak Brook is just one more drop in a cascading flow of development.
A CB Richard Ellis report says nine speculative buildings opened up during the third quarter, pushing up the suburban office vacancy rate from 8.5 percent to 8.8 percent.
That’s still significantly under the 10.1 percent mark a year earlier, but the report notes that the new buildings, totaling 1.25 million square feet of space, are only 52 percent leased. A year or so ago, new buildings typically were 100 percent preleased before they were open.
And the pipeline is still full. Another nine speculative buildings totaling 890,000 square feet are set to open up by year’s end, and the steady stream of announcements promises little letup for the next couple of years.
More Top Picks Best Rain Jackets For Men
Jeffrey Barrett, a CB Richard Ellis managing director, forecasts that vacancy rates will continue edging up as the development cycle continues.
And that trend is beginning to create a tenant’s market, according to Fred Schuler, co-manager of a Chicago suburban team at Julien J. Studley Inc., a tenant representative firm.
“We haven’t started to see anything like the last (overbuilding) cycle, with outrageous concessions,” he said. “But landlords are financing the full complement of improvements. The pendulum has swung back from an unfair market for landlords.”
Schuler said that a year or two ago, tenants who needed to move or expand were getting desperate about their space needs. “Now they can take time and be a little bit more careful. There’s a little bit less panic.”
In addition to all the new buildings, some tenants are finding that they can build their own offices for the same price as moving into a new spec facility, Schuler said. And, indeed, build-to-suits are also being announced with regularity.
All this development may sound ominous at a time when the stock market is bucking and the world economy is in deep trouble.
But Schuler said economic uncertainty is not yet dampening the confidence of his clients–the tenants that presumably will fill all those new buildings.
“It seems like our clients’ businesses are still good,” he said. “(Interest) rates are still low, and financing is still plentiful for clients to expand and build buildings.”
Famous last words?
Fish story: Bill Kimpton, stepson of postwar era University of Chicago Chancellor Lawrence Kimpton, has a flair for the unusual–as befits someone brought up in a U. of C. family.
Kimpton is the head of San Francisco-based Kimpton Hotel & Restaurant Group Inc., which develops and operates boutique hotels and is about to open its second location in Chicago.
The first, the Hotel Allegro Chicago (formerly the Bismarck), opened earlier this year with a theatrical decor and a doorman playing a trumpet call at 9 a.m. for late office workers. (The player has since quit and the hotel is seeking a replacement.)
The second, the Hotel Monaco Chicago, a redevelopment of the former Oxford House at 225 N. Wabash Ave., not only welcomes pets but will offer a goldfish to every guest along with a bowl and fish food.
The hotel, opening Nov. 10, also has forged a partnership with the Shedd Aquarium that includes consultation on care of the fish.
Goldfish never had it so good. Maybe some beer-drinking frogs would like to check in, too.
Downtown days: The boom in downtown living shows no signs of fizzling.
Atlantis Development has plans for a 30-story, 240-unit condominium tower on the northeast corner of Grand Avenue and Orleans Street, another in the thicket of dwellings going up in River North.
And Michigan Avenue Suites LLC, which is affiliated with Barry Realty Inc. of Park Ridge, has filed a proposal with the Chicago Plan Commission to turn 320 N. Michigan Ave. into 80 rental units and corporate suites. Barry, which has closed on the property, plans a $1.5 million renovation.
At least two other developers had looked at that 26-story building–which was built as an apartment tower and then converted mostly to offices–with the idea of making it a hotel.
It clearly has a future as whatever the market dictates.