CRE Midwest

Bradford Allen special report: Take your office search to the next level

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Sameena Basit

With the right guidance, growing, dynamic companies can find their niche in the competitive Chicago real estate market.

Sameena Basit, managing director with Bradford Allen is an office tenant rep broker in downtown and suburban Chicago.

The technology scene is witnessing tremendous growth. According to Built in Chicago, funding to Chicago start-ups has increased 169% from 2012 to 2013. This additional funding has the best of the best go from fledging idea to growing company in no time. With the growth, operational challenges start to multiply as well. Perhaps the biggest of these challenges involves real estate, which is one of the largest line items on a company’s balance sheet.

In a recovering economy where office space is getting tighter, the challenges are heightened. The right space at the right price can foster a culture to help you attract the talent necessary for success. The wrong location or a lease under dubious terms could undermine the very viability of a business.

Major company relocations from the suburbs to downtown by Motorola Mobility and Gogo, as well as expansions by kCura, Fieldglass, Vivid Seats and Punchkick Interactive illustrate that the pendulum is beginning to swing in favor of the landlords, especially in the River North submarket.

The competitive office conditions may be particularly acute for smaller, entrepreneurial companies that often focus narrowly on the brick and timber loft buildings common in River North. With a total inventory of just over 17 million square feet, the River North submarket continues to record positive net absorption, which helped keep the vacancy rate at only 9.4% at the end of the first quarter.Graphic for office search

While landing the right space is tough, here are a few considerations that can help companies stay nimble and successfully navigate through the commercial office space market in downtown Chicago.

Consider River West/Fulton Market -This submarket west of Halsted Street has become a new start-up hub due to the gravitational pull around the 1K Fulton development anchored by Google. Due to this, the availability within the submarket is 13.2% compared to 24.1% in the 1st quarter of 2011. Although this seems close to River North numbers, this area is still growing. Multiple developers and landlords are scooping up industrial buildings and land sites, causing everyone to watch and see how this submarket evolves.

Don’t Discount Established Parts of the Loop - Later-stage startups have begun to migrate to areas like the Central and East Loop to capitalize on the competitive rates and lease terms available. These companies understand that a creative interior build-out can foster the right culture and collaborative work environment—one that can help a dynamic young company attract and retain talent. The infrastructure of an older brick and timber building may not be up to par for the needs of today’s tech-focused startup. Also, access to transit and proximity to clients and partners could be the elements that help drive growth at a new venture.

Investigate Sublease Space - Expanding search parameters to include sublease space could also increase the chances of finding the right space for the right price. Yes, sublease transactions have their drawbacks, especially depending on the strength of the sublessor and the lack of funds offered to retrofit a space. However, a sublease could enable a company to ink a shorter-term deal in a potentially furnished and wired space that might not be otherwise possible. In turn, this could give the business a chance to mature, thus buying more time to better project long-term growth and space needs.

Expect Growth within the Office - Find a space at a building that can give you room to grow. As mentioned earlier, markets with higher vacancy and availability rates can offer better expansion rights than others. Also, the perfect office space today may not meet your needs even a year from now. Having expansion rights helps you focus on growing your business instead of another move.

Know Your Landlord - At times, buildings will offer tempting incentive packages. An owner with distressed properties, shaky financials and a bad track record may make many open-ended promises that lead you astray. Make sure you do some investigation. Due diligence on the owner’s portfolio, financials and history can help you avoid problems down the road.

Although the real estate challenges for your company may sound daunting, remember that success is never out of reach. Partnering with an expert who has experience, deep knowledge of the market and the right relationships can help guide you through the process.