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Chicago skyline office space getting squeezed
The squeeze is on.
Maybe you’ve felt it if you are an office worker. The boss nowadays barely gives you desk space for the computer. Forget about your favorite lamp or the pictures from last year’s fishing trip. And you might find yourself in tighter proximity to your co-workers, to the point where you know a little too much about their personal business.
Companies are compressing the workplace, especially in high-demand urban areas such as Chicago. The trend is starting to show up in the statistics for office usage—not that landlords have any reason to panic.
But the squeeze is evident in this year’s Chicago Skyline report by Jones Lang LaSalle Inc., an innovative annual look at the downtown market. It concentrates not on the entire market, but on 54 buildings it deems to be the dominant players or trend-setters by virtue of their size or fame. The report peels back the walls of each building and shows, floor by floor, where there is space to be had. Jones Lang will mail a copy of the report to those who email a request to Chicago.Skyline@am.jll.com.
This year’s edition portrays a market in equilibrium. Relatively few large blocks of space are available, but demand for them is tepid. Average rents are a little higher compared with a year ago. Vacant space, however, in these 54 buildings has crept up to 14.4 percent from 14 percent a year ago, Jones Lang said.
Jones Lang LaSalle’s latest report on vacancy rates among Chicago’s premier downtown office buildings shows an uptick in overall asking rent and also a small increase in overall vacancy. Below are the vacancy levels by floor for all 54 buildings analyzed in the report. Download the full map of Chicago’s downtown vacancies here.
The increase is slight, but these are the prestige office buildings. Does it signal an economic slump or a slowdown in hiring? Jones Lang Managing Director Steve Smith doesn’t draw those conclusions, but he sees companies demanding more efficiency in their space as a factor.
Last year, large tenants such as Foley & Lardner, Grant Thornton and AECOM took reduced space when they negotiated new or renewal leases in these premier properties, Smith said.
Robert Kramp, Midwest and Great Lakes research director at Jones Lang, said that 10 years ago, it was common for companies to allow 220 square feet per employee. Today, office tenants are down to the 140-to-150 square feet per worker range in Chicago and in other densely populated markets, such as New York, San Francisco, Boston and Washington D.C.
Credit or blame for cramped quarters might go the tech industry. In emphasizing a mobile and interactive work force, with even the top executives sitting among the proletariat, tech firms have invented ways to cram people together and still make it look cool by throwing in the occasional beanbag chair. Call it the Groupon effect.
Sneer at it if you want, but tech companies are bringing jobs downtown, with the largest infusion being Google’s planned relocation of Motorola Mobility from Libertyville to the Merchandise Mart. Smith said most promised migrations of employers from the suburbs to downtown have yet to take place, but they could yield 10,000 jobs for the city over the next four years.
For now, prospective tenants are in the shop-around mode and aren’t ready yet to commit, Smith said. “We still see a lot of inquiries and requests for tours from those looking for large space allocations downtown,” he said.
Properties with significant space to offer include Willis Tower, even though it has been helped immensely by the parent company of United Airlines, user of 830,000 square feet; the Prudential Plaza complex, where the ownership is in flux and two large tenants have or will soon leave, and One Financial Place at 440 S. LaSalle, hit hard by the bankruptcy of the MF Global brokerage.
Downtown office rents overall haven’t changed much since the last recession officially ended in 2009. The Jones Lang Skyline buildings, however, saw average rents increase each quarter of last year. For all of 2012, their increase was 3.4 percent and they ended the year with an average of $32.32 per square foot, a more than 12 percent premium over the market as a whole, the report said.
Status costs, but if companies still want it in an office address, they will use the space to the utmost. Get used to shrinking cubicles.
To learn how Jones Lang LaSalle is navigating the shrinking cubicle, check out our interview with CEO Colin Dyer here.
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