Magazine article Journal of Property Management

Core Strength

Magazine article Journal of Property Management

Core Strength

Article excerpt

The Midwest produces healthy gains with the exception of Chicago's office market

Chicago: Turbulent Winds

Chicago winds blow through empty office space these days. "The Chicago downtown office market has yet to register any signs of recovery since the downturn in 2000," reported CB Richard Ellis in its Chicago Downtown Office MarketView, First Quarter 2005.

The recently completed 300,000-sq. ft. Hyatt Center boosted vacancy rates to 15.7 percent. This is the highest vacancy rate reported since 1996 in an office marketplace larger than 118 million square feet. Chicago's unemployment rate of 6.4 percent lags the national rate of 5.4 percent, indicating lack of job creation.

Reported asking lease rates were in the $18-$25 per sq. ft. range for trophy buildings, with generous tenant improvement allowances and free rent lowering effective rates. The weak office market spurred activity as existing tenants capitalized on early lease renewals and improved office locales. Jones Lang LaSalle's Office Market Highlights, First Quarter 2005 reported three transactions for leases in excess of 100,000 square feet.

CB Richard Ellis's Chicago Downtown Office MarketView's outlook for 2005 remains bleak: "The trend of a rising vacancy rate will continue as the new construction comes online adding additional space to the CBD. Despite the high vacancy abundant downtown and lack of a large driver for demand, developers remain interested in pursing new space for growth downtown. Without an increase in demand, additional construction will put more pressure on an already saturated CBD market."

The residential marketplace had a happier story. More than 4,500 condominiums are under construction in the burgeoning downtown, said Shari Vass, CPM, CCIM, president of Marina Management Corporation. She said a new spotlight has shone on Chicago.

"North suburban people with tremendous equity don't want to sell their homes, but want a (second) place downtown," Vass said. "It's fun-'Wicked' is here, the 24-acre Millennium Park is within walking distance. Live, work and play is a trend that's here to stay."

Indianapolis: Engines Revved

Although the Indianapolis downtown office market languished in the first part of 2005, growth engines are purring to life. Owners experienced vacancy rates of 15 percent, according to CB Richard Ellis's Indianapolis Downtown Office MarketView, First Quarter 2005. Rents trended slightly downward, with average rates dropping almost $.20 per square foot to $16.81. Vacancy and rental rates were skewed by the dramatically poorer performance of Class C office space with a whopping 25-percent vacancy and $13.52 per sq. ft. rents.

New construction includes an expanded convention center and a 300,000-sq. ft. headquarters building for Simon Property Group, the largest mall owner in the United States. Indianapolis expects a new Colts Stadium to be constructed by 2008.

The downtown housing market has thrived with steady condominium sales, spurred by affordable prices and fairly limited supply. Most condominiums are low- or mid-rises with starting prices of $80,000. Instances of tabled projects, such as a high-rise condominium project failing to presell sufficient units upwards of $325,000, are exceptions in an otherwise strong market. Downtown remains densely compact, with entertainment, ample restaurants and a seven-year-old Simon mall. …

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