Office N Illinois

The 'burbs are still an office draw

More than 150 people packed into the recently renovated atrium of President’s Plaza near O’Hare for the 4th annual State of the Suburban Office Conference. More than 150 people packed into the recently renovated atrium of President’s Plaza near O’Hare for the 4th annual State of the Suburban Office Conference.
The first panel featured, from left to right: David Stein of Steinco, Joe Neverauskas of Equus Capital Partners, Chris Cummins of Cushman & Wakefield, Curt Pascoe of Ryan Companies, Adam Johnson of NAI Hiffman and Michael Klein of GlenStar. The first panel featured, from left to right: David Stein of Steinco, Joe Neverauskas of Equus Capital Partners, Chris Cummins of Cushman & Wakefield, Curt Pascoe of Ryan Companies, Adam Johnson of NAI Hiffman and Michael Klein of GlenStar.
The second panel featured, from left to right: Jen Sweeney of Millbrook Properties, Scott Ohlander of JLL, Tom Savage of GlenStar, Stephen Wright of Wright Heerema Architects, Michail Yazbec of J.C. Anderson and John Norris of Newmark Knight Frank. The second panel featured, from left to right: Jen Sweeney of Millbrook Properties, Scott Ohlander of JLL, Tom Savage of GlenStar, Stephen Wright of Wright Heerema Architects, Michail Yazbec of J.C. Anderson and John Norris of Newmark Knight Frank.

More than 150 people packed into the recently renovated atrium of President’s Plaza near O’Hare for the 4th annual State of the Suburban Office Conference, co-hosted by GlenStar. The dozen expert speakers on hand had much to say about the state of affairs for the office market outside the influence of downtown Chicago.

The first panel, moderated by David Stein, CEO of Steinco, took a look at the state of the suburban office market. Where are things headed? Can we expect vacancy rates to drop? Are young professionals starting to move to the suburbs in greater numbers?

The panel touched on a number of subjects, with some dissent as to whether or not the shift of millennials choosing to live in the suburbs instead of downtown has already begun. The speakers also discussed spec suites, and whether the capital outlay is worth it to attract foot traffic and, ultimately, tenants.

“Around 90 percent of spec suites get leased in first 12 months,” said Chris Cummins, executive director, office leasing at Cushman & Wakefield. “It’s just smart to do them, they lease up quickly and you get a premium.”

Cummins estimates that the cost to build out a spec suite, though it varies project to project, is about $60 per square foot on average. Adam Johnson, executive vice president with, NAI Hiffman, pointed out that spec suites help to re-tenant a space as well.

“A lot of folks that are signing 1,500 square feet don’t want seven- to 10-year leases. They want three-year leases,” Johnson said. “You can’t recreate the wheel every time. Spec suites allow you to control those costs.”

One bit of uncertainty that many in the industry have hashed over of late is the impact of a new Cook County Assessor. Will his refined algorithms, which should shift the tax burden from residential to commercial property owners, have reverberations throughout the suburban office market?

“I don’t think the assessor will have much impact on the suburbs,” said Michael Klein, managing principal at GlenStar. “What we hear from tenants as the number one driver for them is retention and recruiting. No one is happy about higher taxes, but they have to be in the right place to keep and attract talent.”

“If we were in a major recession it would be a different scenario and every dollar is important,” Klein continued, “but today everyone is growing revenue so it’s all about talent.”

On the subject of flexible office and coworking spaces, there was mixed sentiment on their place in the suburbs. Regus was a long-time player in the market, Industrious opened a location in Evanston and there have been other plays in the ‘burbs. But Joe Neverauskas, senior vice president at Equus Capital Partners, thinks they are a non-starter outside of the CBD.

“We have had several companies look at Mid America Plaza in Oakbrook Terrace, but we decided not to do it because you are putting a lot of money up front,” Neverauskas said. “In the first couple of years you are partnering with these companies and you may eventually get higher rent per square foot, but you’re taking a risk. We’ll create an environment for people to collaborate, but to put that money in with a potential recession, we are negative.”

Which office types are performing the best in the suburbs? Again, it differs submarket to submarket, but Curt Pascoe, director of real estate development at Ryan Companies sees a trend.

“Medical office is good because of the terms you get, but general-purpose suburban office isn’t doing as good,” said Pascoe. “There are big blocks of space available in places.”

Jen Sweeney, executive director of Millbrook Properties moderated the second panel. Joining her were John Norris, senior managing director, Newmark Knight Frank; Scott Ohlander, executive vice president, JLL; Tom Savage, senior vice president, GlenStar; Stephen Wright, principal, Wright Heerema Architects and Michael Yazbec, president, J.C. Anderson.

This discussion focused on the keys that owners and operators should focus on when seeking to attract and retain tenants in the suburbs. First and foremost: amenities.

“I’m not a fan of gimmicky stuff like game rooms,” Ohlander said. “Outdoor space does it for me. Natural light, high ceilings. Better than some small Wi-Fi lounge in the basement.”

While office properties—regardless of location—are in the midst of an amenities war to attract tenants, there’s more to it than that. Having someone on staff to engage with tenants about the amenities on offer can help with retention in the long run.

“It’s important to have a person there to make sure the community experience is engaged by all tenants,” Norris said. “There’s no sense in having beautiful amenities if you don’t make sure people are using them.”

Amenities go beyond fitness centers and cafeterias. The way we work is changing and more office users consider bleeding-edge technology to be a must, even in the suburbs.

“We’ve had tenants that can’t predict where their business will be, so they are looking to future proof. Some are completely wireless,” Yazbec said. “We’re starting to see that take off. Tenants using mobile phones as opposed to desk phones, as long as the signal is strong.”

“10 years ago, LEED was the big conversation,” Savage said. “Green is still important, but technology is more important these days.”

With more focus on cloud-based technology, a building’s digital infrastructure has to be robust.

“Most tenants used to have a huge server facility in their space, but now they’re mostly in the cloud so they need connectivity,” Wright said. “You rarely see anyone putting in huge data centers in these buildings. There’s been a shift in technology, more accessing than housing.”