Chicago Suburbs Are Poised For A Comeback As Post-Pandemic Office Picture Comes Into Focus
For years, corporate migration in the Chicago area has tended to travel one way: from the suburbs to the city’s Central Business District. From food giant Hillshire Brands to Motorola Solutions and in-flight WiFi provider Gogo, the past decade has brought a spate of relocations from the suburbs into the city, with the past two years of remote work pushing suburban office vacancy even higher, to a record 27% at the end of last year, according to JLL data.
But that trend could be on the brink of a reversal thanks to an influx of young people to the suburbs, new work patterns that will solidify and enshrine hybrid and work-from-home as the new norm, skyrocketing downtown rents, and perceptions that Chicago’s urban core is an increasingly unsafe place to live and work.
After two years of a pandemic that stymied return-to-office efforts, panelists at Bisnow’s Chicago Future of the Suburbs event March 30 said it is finally happening, with momentum building for suburban locales now that firms that had put off decisions are being pushed to plan for the future.
“My theory is that we haven’t really seen the full post-pandemic downtown, and I know Metra is probably at 30% of their capacity bringing people back downtown,” said Paul O’Connor, a partner with Hamilton Partners. “I haven’t given up on companies moving [back] from downtown, although we haven’t seen that — yet. I’m stubborn and I think that could happen when traffic starts to get unbearable on the way downtown, and because people don’t want to use Metra. That’s going to be a tough row to hoe.”
JLL Senior Managing Director Andrea VanGelder said that for some years, a steady stream of companies has moved from the suburbs to the city as employers chased labor, quality properties and urban living. But rising rents, taxes and operating costs have bumped downtown Class-A office costs into the $90-$100 per SF range. Meanwhile, the millennials who drew companies downtown in the first place have begun migrating out of city centers and into the suburbs at a rapid clip — a trend that took off prior to the pandemic and only accelerated when Covid-19 hit.
In 2020, the populations of lower-density counties in large urban metros grew by more than 0.8%, per U.S. census data, while populations of urban counties in large metros declined by about 0.5%.
According to VanGelder, who supports brokers in Chicago’s suburban office market, those trends bode well for suburban office. National polls show 37% of all homes last year were purchased by millennials between the ages of 20 and 35, she said, and 54% of those homes were situated in a suburb. In the Chicago area, Evanston saw the most new millennial residents in 2021, followed by Naperville and DuPage County.
“Those millennials now want to get out of the city,” she said. “They want to have room for their kids to run around, and they’re going to start thinking, ‘Do I really want to drive or take the train into work now if I can be out in a place like [Bell Works in Hoffman Estates] or in the new redo of the McDonald’s campus or any of these other places that are coming up with these great ideas of having lots of amenities?’ And we will see, because of high rents, because of crime in the city and because of the good amenities being developed in the suburbs, that people will start thinking about moving their offices back.”
For that to happen, though, panelists said suburbs will have to offer the amenities former urbanites expect, from a bustling restaurant and arts scene to personal trainers. Wendy Spreenberg, founder and president of YES! Your Exceptional Space, said Chicago suburbs are embracing the 15-minute city concept that emphasizes a decentralized local economy in which all necessary amenities are within a short walk, bike ride or public transit trip.
“They’re reaching out to us to see what it is that we can do to contribute to create the downtown suburban location as a destination again,” Spreenberg said. “And part of that is creating a flex opportunity that becomes event space, plus café, plus the retail that may not be in downtown anymore, but is very much part of a vibrant, visible community.”
Evanston, where Vermillion Development is developing the Class-A 18-story 605 Davis office project — a project Vermillion Managing Director Matt Havey said would not look out of place on Wacker Drive — was cited by several panelists as a prime example of where new suburban office migration will likely flow. The college town located 12 miles north of downtown Chicago on Lake Michigan has not only welcomed the bulk of millennial newcomers moving out of the city, Havey said, it is also within a 15-minute drive from the homes of many downtown C-suite executives.
“It’ll be interesting to see how quickly that takes hold,” he said. “But I think a lot of firms are aware that their people don’t want to sit on the Metra with hundreds of other people and don’t want to sit in traffic for a couple hours every day. I think some of those firms are going to start considering the suburbs a little more.”
Some formerly downtown-only companies have already begun dipping their toes into suburban waters as workers begin transitioning back to the office, if only on a hybrid basis.
Core Acquisitions Managing Principal Adam Firsel said even his small company of 11 people has opened a second suburban office in Deerfield to accommodate employees who would prefer to work closer to home, a hub-and-spoke model he expects to become a trend as tenants make long-term decisions about space needs.
“People want to be in the action of the city, but with a lot of people now putting down roots in the suburbs, to have suburban locations,” Firsel said, also citing the example of Allstate, which sold its suburban headquarters in Northbrook in November 2021 and purchased a 10-story building at 29 North Wacker Drive in Chicago’s Loop early this year. Even so, Allstate plans to continue leasing suburban office space in what the company said was an effort to give employees more choice in where they work.
The same flight to quality tenants are seeking in downtown properties applies to suburban office as well, if not more so. Panelists warned tenants are demanding flexible options, a rigorous focus on health and wellness, tech-enabled spaces and other perks like quiet space for individual work and dedicated creative studio facilities for shooting TikTok videos, podcasting, videocasting and other forms of e-commerce.
“If you can’t, if you’re a Class-C building that can’t satisfy those concerns, I think you’re going to either be looking at a serious retrofit or you’re going to be looking at a conversion,” Havey said.
How the suburban market will shake out and how the new hybrid work landscape will impact decisions about location and footprints are open questions, Firsel said, with companies still reluctant to commit to long-term leases or set square footage requirements.
“A lot of companies still don’t know what they want to do,” he said. “They don’t know exactly what the mix of work from home is going to be, so I think for the landlords that can offer shorter-term leases, [where] you can get in there quicker and you don’t have to go through the design and permitting and build-out — if you can shorten that process and shorten leases, I think you’ll have a lot of success with a lot of companies not really wanting to commit because they don’t know what the final shakeout is going to be.”
What is likely, though, Havey said, is most tenants will be signing up for less space as they take up new leases. That’s already being seen in two new suburban leases announced this week for the Woodfield Mall area. Crain’s Chicago reported the Federal Aviation Administration signed a lease for 116K SF in Rolling Meadows. When the FAA moves its regional headquarters from its longtime 196.5K SF Des Plaines home next year, it will mark a 41% space reduction. In the same vein, accounting and professional services firm RSM is halving its current 51K SF space in Schaumberg and moving into 22K SF elsewhere in the same northwest suburb.
“You know, it’s taking somebody who’s in 150K SF and putting them in [100K],” Havey said. “And for some buildings, that’s going to work quite well if you have a flexible model that you can employ. Tenants are going to test if you can satisfy their needs. We expect the flight to quality to increase in momentum over the next six to 12 months, and we expect what folks are going to look for is slightly smaller spaces and the same sort of amenities they were looking for before, but I think they’re also going to want more control over the space.”
To download more information of our free guide to Return To Office and how to Create Experience Not Just Space!
For Landlords and Developers wanting to learn about our process, please view our whitepaper.
Connect further – email@example.com