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January 3, 2019

2019 Predictions

Happy New Year! As we welcome in 2019, it’s time again to dust off the crystal ball and predict what lies ahead for the new year.  Before we begin, let’s take a look back and see how my 2018 guesses playout out:

1) The market will keep marching forward at a slow and steady pace. Average rents will remain consistent with 2017 levels. However, modest vacancy increases will help put tenants on a more level playing field, which[ might even lead to an advantage in certain circumstances. For the most part though, we will be at equilibrium.  Ding-ding-ding! This is exactly what happened.

2) Sales activity will start to slightly pick up towards the end of 2018 due to lowered seller expectations and prices creeping downward. Those who have been sitting on the sidelines will start to get back in the game.  Not exactly. Activity remained steady and there is no sign of prices going down anytime soon. Those on the sidelines generally stayed put.

3) The Tribune Tower redevelopment plans will be announced and feature luxury apartments on the upper floors and a hotel on the lower half. The first two floors will be leased to a significant (and surprising) national retailer which will continue to accelerate the shift in retail activity towards the Chicago River and Millennium Park. The luxury apartments (and condos) as well as the hotel are happening, but no announcement of any retail tenants just yet.

4) As part of the ongoing Willis Tower renovation, Willis will give up its naming rights. Will the Sears name be restored? Nope, instead the building will be rechristened after its largest tenant. Welcome, United Tower.  This was very wrong.  Spoiler alert: I am not giving up on this idea just yet.

5) No new office developments will be announced, as there is more than enough going on now to satisfy every tenant currently in the market for the next few years.  A huge swing and a miss, as Salesforce Tower Chicago and BMO Tower will be joining the skyline in about 2 years.

6) After being declared a finalist, Amazon will ultimately not select Chicago for its HQ2. Atlanta will be declared the big winner.  Atlanta?  What in the world was I thinking?

7) As a strong consolation prize, Chicago will attract a significant corporate headquarter that will relocate here from another Midwest city. This tenant will become the anchor of the Old Post Office.  Nope, although Chicago did do well in continuing to lure several new tenants from both the suburbs and other cities. The Post Office landed two significant users in Walgreens and Ferrara.

8) With Amazon out of the picture, Goose Island, the River District, and believe it or not, Fulton Market, will struggle to find tenants. Of course, Lincoln Yards will not, because Sterling Bay.  No struggles at all from Fulton Market, but the other developments are still in the planning stages and yet to land any office tenants.

9) Plans will be announced to shut down and demolish the Thompson Center by the end of 2019. No firm redevelopment plans will be announced and the site will end up sitting vacant for an extended period of time. However, the State of Illinois’ search for new office space will provide a nice little boost to the market towards the end of the year.   Nah, this was essentially a non-story in 2018.

10) Take two on this prediction. Spurred on by the legalization of sports betting, plans will be announced for the former Michael Reese Hospital site to be redeveloped into a casino and entertainment complex…… which will include a grocery store.  No dice here, as Mayor Emanuel pushes the casino for the southeast side.

Okay, so 2018 was not one of my better efforts. Let’s see if I can improve upon my psychic abilities for 2019.  Here we go.

1) After an extended period of growth, leasing activity will begin to slow across the board in downtown Chicago. There will not be a full-blown collapse by any stretch, but absorption will be down and concessions will increase as competition becomes fiercer to attract tenants. Rents will generally remain steady as owners still struggle to cope with the unprecedented property tax increases.

2) A slowing market combined with a weakening economy will bring on the first group of distressed sales downtown in quite some time. This will be the first step in sales prices becoming a bit more reasonable as compared to the past few years.

3) An owner of multiple downtown office buildings will put their portfolio up for sale and exit the Chicago market.

4) Some cracks will begin to appear in the co-working phenomena. WeWork will tap the brakes on expansion in 2019, while two of their competitors merge together and another shuts down entirely.

5) None of the planned developments on the outskirts of downtown (Lincoln Yards, The 78, Burnham Lakefront, River District) will be successful in landing an anchor office tenant. One of the developers, citing economic concerns, will completely shelve their project for several more years.

6) While these planned developments struggle, the Fulton Market locomotive keeps on chugging, as another major corporation will announce plans to relocate their operation to a new Sterling Bay-developed property in the district.

7) Certain segments of retail will continue to struggle, but the Mag Mile starts to rebound. Multiple new, non-traditional concepts will sign leases and set up shop on North Michigan Avenue, all at significantly lower rents than in the past.

8) Speaking of North Michigan Avenue, the former Hancock Building will land a new anchor tenant of the tech variety and gain naming rights to this iconic property as part of the deal.

9) While on the topic of naming rights, let’s try this one again.  The Willis Tower will have a new name by this time next year.

10) A well-known tenant in the tech industry who occupies a significant portion of their building will substantially scale back in 2019 and put their space up for sublease.

Best wishes for a happy, healthy and prosperous 2019!