Heartland Real Estate Business

FEB 2018

Heartland Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Midwest.

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28 • February 2018 • Heartland Real Estate Business www.REBusinessOnline.com "Suburban office vacancy may reach a point of stability as asking rental rates recede, driving new leas- ing activity and reducing longstand- ing supply," states the fourth-quarter report from Cushman & Wakefield. "Buildings in hotspot areas that have adapted to evolving occupiers' needs are well positioned to continue to con- trol market demand." According to Cushman & Wake- field, vacancy in the suburbs stabi- lized in the fourth quarter of 2017 at 20.6 percent as the pace of large em- ployers moving to the CBD decelerat- ed. The historical average vacancy for the suburban Chicago office market stands at 20.9 percent. Don Shoemaker, partner and co- founder of Oak Brook, Illinois-based Franklin Partners LLC, echoes this sentiment. He says that vacancy rates have been static in suburban Chicago, and that absorption is higher in inner suburbs such as Oak Brook and Evan- ston than outlying ones. "Because of the state's political cli- mate, we haven't seen a lot of tenants moving in from out of market. That's what used to fill up the suburbs," says Shoemaker, referring to budget issues that have plagued Illinois in recent years. "Companies would grow up downtown then move to the suburbs where their executives lived." There is unequivocally a flight to quality among tenants in suburban Chicago. Modern finishes and ameni- ties are really critical for helping boost absorption in the suburbs, says Shoe- maker. Beyond that, the biggest con- straint to leasing up large blocks of space is insufficient parking. Last year, Franklin Partners bought 1900 Spring Road, a 112,500-square- foot office building in Oak Brook. New planned amenities include an on-site fitness and conference center. Beyond on-site amenities, a walkability factor is extremely important for today's of- fice tenants. Over 160 dining and re- tail options are within a five-minute walk from 1900 Spring Road, accord- ing to the firm. "Whether you're downtown or in the suburbs, the challenge of retain- ing millennials is still the same," says Shoemaker. The solution is being able to offer a building that is well located and features ample amenities. Adding amenities and renovating buildings is done with the sole intent of attracting and retaining tenants, not investors, according to Shoemaker. A building will sell at a higher price if it is fully occupied by tenants that want to stay put. By and large, Franklin's acquisi- tion strategy is to undertake value- add turnaround projects by purchas- ing properties in need of renovation. This year is more of a "sell" time, says Shoemaker. Tarantur of Podolsky Circle COR- FAC International agrees on a sell strategy, further noting that property owners who bought value-add office buildings over the last three to five years and increased occupancies are likely to be sellers. "You have to have a little of a value- add component remaining to attract buyers," he explains. "Anyone who purchased post-recession is probably bound to be a seller today." One such buyer is Itasca, Illinois- based Hamilton Partners Inc. In De- cember 2017, the firm partnered with Balfour Pacific Capital Inc. to acquire One Pierce Place and 500 Park Boule- vard in Itasca for $78.3 million. The two buildings span 976,000 square feet within the Hamilton Lakes Busi- ness Park. Amenities include an ath- letic club, restaurant and deli, confer- ence facilities and direct access to an adjacent hotel. "With this acquisition, we are plan- ning for multiple projects, including redesigned entrances, lobby spaces, elevators, conference rooms and rest- rooms," says Pat McKillen, a partner at Hamilton Partners. "The buildings have been well-managed and main- tained, but new tenants will be excited to see an updated look and design for future leasing." One Pierce Place was built in 1984, while 500 Park Boulevard was con- structed in 1980. Podolsky Circle recently arranged the sale of 400 Skokie Boulevard, a 195,326-square-foot office building in Northbrook, for $20.9 million. Ameri- tus Real Estate Investment purchased the property, which was 77 percent leased at the time of sale. Property amenities include a café, fitness cen- ter, conference center, on-site storage and two balconies. In response to competition from firms moving downtown, today's suburban landlords are trying to provide tenants with all the same perks that they can receive in an ur- ban office, such as concierge services, ample and healthy food options and access to public transportation, says Tarantur. Programs to utilize Uber or shuttle services are even being con- sidered. McKillen cites Dash on Demand, a pilot program implemented in Itasca last year that offers the use of electric vehicles for employees to get to and from the Itasca train station and Ham- ilton Lakes Business Park. Rides are offered during commute times in the morning and evening for $3. Buildings where landlords have made an effort to increase tenant amenity packages are generally do- ing quite well in the suburbs, accord- ing to Tarantur. The buildings that don't have enough parking or are difficult to access are the ones that struggle. "A blanket, overarching statement that the suburbs are being crushed overlooks the micro nature of Chi- cago's suburban office market," states Tarantur. By "micro nature," Tarantur is refer- ring to the numerous submarkets that make up the overall market. For ex- ample, the O'Hare submarket tends to always perform well compared with the average vacancy rate of the sub- urbs. The submarket posted a vacancy rate of 17.8 percent in the fourth quar- ter of 2017, according to Cushman & Wakefield. The Southwest Corridor submarket was even lower at 14 per- cent. Looking ahead, Paul O'Connor, partner with Hamilton Partners, an- ticipates an increase in suburban of- Redi-Dock ® Provides Instant Drive-In Access to Your Facility • Modular • Minimal site prep • Low maintenance • Delivered & set • Easily relocated • Lengths to 50' • In nite widths • Heavy duty rating • No future demolition • ADA ramps available Call: 800-724-4881 www.ReadingPrecast.com anthony@readingprecast.com Call for an immediate consultation. Hamilton Partners Inc. acquired One Pierce Place and 500 Park Boulevard in Itasca, Il- linois, for $78.3 million. Amenities include an athletic club, restaurant and deli, confer- ence facilities and direct access to an adjacent hotel.

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