With all of the other craziness that happened in 2016, it may be easy to forget some of the major events that occurred in commercial real estate. While not quite as frenzied as 2015, Downtown Chicago commercial real estate has remained quite active as the market continues to churn out deals at a healthy pace. Vacancy rates are historically low in some sectors, rental rates continue to climb, and sales keep closing at mind boggling numbers.
Now that we’re at the end of the 2016 saga, I decided to take a look back at the top 10 commercial real estate highlights from the past year:
10. Sustained Strength in the Leasing Market.
The beat went on in 2016, as vacancy continued to decline and rental rates increased. Downtown vacancy rate is currently hovering around 11%, which is historically low. River North continues to be the market with the most demand, but the West Loop/Fulton Market and Central Loop districts are close behind. Even the East Loop had a big year with several significant leases executed, highlighted by Wilson Sporting Goods’ planned relocation to the Prudential Building.
9. Co-Working Spaces Kept (Co)Working.
The co-working craze has not slowed down, as WeWork and various competitors continue to occupy large amounts of space throughout the Loop. While WeWork seems to be tapping the breaks on expansion, many of their facilities are operating close to full occupancy and commanding healthy rents from not only individual practitioners, but larger corporations as well. Other co-working facilities making their presence known in Chicago this year include Assemble, Make Offices and Serendipity Labs.
8. Advances in Public Transportation.
At long last, the Loop Link bus service and the related Union Station Transit Center are fully operational and reducing travel times between the East Loop and commuter train stations. Construction of the Washington/Wabash “L” superstation is nearly complete and plans are actively being discussed for the remodel and redevelopment of Union Station, which incidentally might also include the creation of a two million square foot office tower.
7. The Lucas Museum Debacle.
Chicago missed out on a singular opportunity to land a key tourist and cultural attraction when the Friends of the Park blocked the city’s attempt to provide George Lucas with 17 acres of lakefront property between Soldier Field and McCormick Place to construct a museum. In addition to the negative economic impact of losing the bid, it is also a blow to the ongoing efforts to develop an entertainment and retail district in the nearby Motor Row corridor of the South Loop.
6. The Great Migration.
A considerable number of firms continued to abandon their suburban office campuses and relocate downtown in order to take advantage of the more diverse and talented labor pool. Corporations such as McDonald’s (more on them later), Beam Suntory, Wilson Sporting Goods, SC Johnson, and STATS have all signed noteworthy leases in 2016.
5. Shiny New Developments.
The imminent opening of new skyscrapers at 444 West Lake and 150 North Riverside–along with various sized towers under construction at 151 North Franklin, 625 West Adams, in Fulton Market and the Old Post Office redevelopment–will collectively be the first true test of market strength in several years. The rapid pace in which these new buildings are leasing up demonstrates how pent up the demand has been for new development. However, there is still a substantial amount of new supply that remains unaccounted for. While the relocations from suburban markets and other cities will help with absorption, there are now many more options for tenants to choose from which could potentially give them the upper hand once again.
4. The Amazing, Ongoing Transformation of Fulton Market.
There is no sector of the city with more activity than Fulton Market. Between the planned office buildings, hotels, entertainment venues, retail, restaurants and residential developments, it is hard to keep track of everything going on. No less than 43 developments are either underway or in the planning stages and there are no signs of this juggernaut slowing down. Sterling Bay continues to lead the charge but other local and national developers and investors such as Shapack Partners, R2, Madison Capital and Thor Equities have all gotten into the game as well. National retailers such as Anthropologie and Free People are also beginning to plant their roots.
3. The Sale of Tribune Tower.
After years of speculation, Tribune Media announced plans to sell the iconic Tribune Tower for $240 million to developer CIM Group. The rumor is that the landmark building will be redeveloped into a combination hotel, residential, and retail building. As a result of the sale, Tribune Media inked a 61,000 square foot lease at 303 East Wacker Drive.
2. The Sale of the Old Post Office.
Following a countless number of failed attempts, 601W Companies acquired the cumbersome Old Post Office and put forth a sensible redevelopment plan modeled after their successful renovation of the Starrett-Lehigh Building in Manhattan. The project–which will ultimately add office space, a rooftop park, and a river walk–has been approved by the City of Chicago and work is now underway.
1. McDonald’s Relocation to Fulton Market.
In arguably the most momentous transaction in decades, McDonald’s solidified Fulton Market’s long term importance in the future of downtown Chicago real estate when it announced plans to relocate from Oak Brook to the site formerly occupied by Harpo Studios, to be known as 1045 West Randolph. Their lease for 567,000 square feet is due to begin in 2018. A direct result of this transaction is Sterling Bay’s plan to construct a 360,000 square foot property at 210 North Carpenter, which is being eyed to accommodate several suppliers who regularly do business with McDonalds.
So there you have it; what a fascinating year it has been. Now we have to wonder: What is in store for 2017? In my next blog, I’ll let you know what I think will happen and take a look back on how last year’s predictions fared.