- Avg. rent per sq. ft., Class A: $23.17
- Avg. rent per sq. ft., other classes: $16.97
- Large employers: Carolinas Healthcare System, Wachovia, Bank of America, Wal-Mart Stores, Food Lion, Duke Energy
- Percent of population over 25 with bachelor’s degree or higher: 30.5%
- Percent with advanced degree: 9.5%
- Median home value: $157,600
- Venture capital invested in 2007 (through Q3): NA
Sources: Reis Inc., U.S. Census Bureau, Charlotte Chamber of Commerce, PwC/NVCA MoneyTree Report
With relatively high vacancy rates, decreasing demand, and a growing supply of space, Chicago is one of the few places that have been semi-immune to huge rent increases. It “has probably been the softest of any of the major markets for the longest time,” says Gerald Porter, chairman of corporate real estate advisory firm CresaPartners. That despite having 37 percent of its downtown space, including trophy buildings like the Sears Tower and the Civic Opera House, change hands for higher prices in recent years.
CME Group CFO James Parisi used that softness to his advantage when it came time to renew a lease for his company, which is the product of a recent merger between the Chicago Mercantile Exchange and the Chicago Board of Trade. When the company’s main building was acquired by Blackstone earlier this year, Parisi and his real estate consultant announced that they were moving out unless the new landlords agreed to complete a $25 million–plus renovation, with a minimum 10 percent decrease in rent. Despite its no-negotiation reputation, Blackstone complied, since the company “needed our lease to solidify the value of the building,” says consultant Holly Duran, of Holly Duran Real Estate Partners. That agreement was written into the terms when Blackstone later sold the property to Tishman Speyer, she says. Renovations are now under way.
Chicago also boasts a wide array of suburbs that are considered legitimate homes for business, with good public transportation and relatively cheap land to lure business outside the downtown area. The comparatively low property taxes in DuPage County, which borders the city, has made Oak Brook (home of McDonald’s and Federal Signal) particularly popular.
Still, the suburbs-versus-downtown decision “is driven by labor-force considerations more than anything else,” says Richard Schuham, executive vice president in Studley Inc.’s Chicago office. Motorola, Brunswick, CareerBuilder, and PepsiCo have all brought research, design, or marketing centers downtown in the past several years, and some old-line industrial companies are locating wholly in the downtown. United Air Lines Inc. moved there in 2006 from suburban Elk Grove Village and is now expanding, thanks in part to a package of incentives from the city that could total $15.5 million. USG Corp. received a similar package two years ago to keep its headquarters within city limits.
Assuming the credit crunch forces leveraged landlords to ease up, rents should come down by the second half of 2008, says Schuham. And 5.5 million square feet of new construction will become available between 2009 and 2012.