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Downtown office vacancies fall but rents slip too

Updated: May 5, 2012 8:18AM



Afew trends are becoming clear with the latest batch of statistics about the downtown and suburban office market. The main one is that in and around the Loop, office vacancy rates are still declining, with some sharp reductions from the reports that covered the end of last year.

The tenant representative firm Studley Inc. said its data for the first quarter showed overall downtown vacancy to be 17.5 percent, a figure that includes what’s available via sublease, compared with 18.1 percent for the fourth quarter of 2011. The three-month change was substantial in certain submarkets, such as the West Loop, with its rate declining to 17.9 percent from 18.7 percent, or the East Loop, with its rate dropping to 20.2 percent from 21.3 percent.

But Studley also found a slight decline in average rental rates during the quarter, a sign that landlords are nervous and that the market has yet to enter full-throttle expansion.

Joseph Learner, managing director at Studley, said the declining vacancy rates are misleading. Choices are limited for big users who need 250,000 square feet for more, he said, “but this a market of mid-size users and if you need 25,000 to 50,000 square feet, you have many options you can evaluate.”

Downtown vacancies have been declining for about a year, a sign of hiring and economic uplift. But Learner noted that many employers still are downsizing and that those who move offices generally occupy less space than they had before.

Studley’s suburban numbers show a slight drop in vacancy for the first quarter, to 25.6 percent from 25.7 percent, but the result only seems to reinforce what sorry shape that market is in. “I think of the word ‘bloodbath’ for the suburbs,” Learner said.

In contrast to downtown, the suburbs have nothing to drive demand. Some anchor companies are moving downtown and layoffs or closures are sporadic. Among them are MetLife closing in Oak Brook and Itsaca, shedding 132 jobs, and Equable Ascent Financial closing in Buffalo Grove, laying off 131. Every increase in gas prices is a new disincentive for employers to be far from public transit.

“I don’t see the suburban vacancies getting below 20 percent for the next several years,” Learner said.

WEST LOOP WHEELS: The West Loop is getting a car dealer. Harlem Garfield LLC, which owns Volvo of Oak Park, will open a Fiat dealership this summer at 647 W. Randolph.

The dealer signed a 10-year lease for 13,000 square feet on the base of a 15-story condo building at Randolph and Desplaines. The agreement gives it frontage on two commercial streets plus signage that will be visible from the expressway.

Mike Rourke, vice president of @properties Commercial, represented the landlord in the lease and James Ascot of Ascot Realty Group Inc. represented the dealer.

NEAR SOUTH MARKET: The Emanuel administration has endorsed the sale of city-owned land at 1625 S. Clark in a deal that would bring in a new Mariano’s supermarket. The 2.5 acres would be sold for $3.5 million, matching an appraisal. Buyers Simon Konover Co. and Outlook Development Group LLC plan to build a three-story building that would be leased to Mariano’s. There would be two parking levels. The store would be the fourth Mariano’s in Chicago.

AUCTION ACTION: You’ve heard of dead shopping malls, ruins from an obsolete style of American consumerism. There also are dead or near-dead shopping plazas, neighborhood retail sites that have fallen on hard times. A couple of local properties are going up for auction for buyers who think they can revive them.

Rick Levin & Associates Inc. will auction a never used, 43,000-square-foot plaza at 16501 Weber Road in Crest Hill, with the minimum bid of $1.5 million. CBRE Auction Services has a 55,000-square-foot partially leased property at 12337 S. Route 59 in Plainfield. Both will be auctioned May 2.

But for a more exotic opportunity, consider the town of Buford, Wy., near Cheyenne. According to Toptenrealestatedeals.com, the “nation’s smallest town,” owned by its lone resident, will be auctioned Thursday with a starting bid of $100,000. You get your own ZIP code and a few buildings of some historic value.

Auctions of woebegone towns are a mini-trend. Last year, a Filipino church bought Scenic, S.D., for a reported $700,000.

ACCOLADE LADLE: The Chicago Architecture Foundation honors Magellan Development Group LLC for its work at Lakeshore East at an annual gala April 13. Details are at architecture.org/gala.



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