For Some Office Tenants in Chicago, Being Out of the Loop Is In

Office developers in Chicago are thinking outside the box — and outside the central business district — in order to cater to tenants in search of creative office space. While there will always be companies that want the cachet that a business address in the Loop offers, others realize the strategic advantages of urban, non-CBD locations as a recruiting tool.

Live/work/play neighborhoods like River North and the West Loop are growing because high-profile employers want to attract a younger workforce that is drawn to the loft-style offices these neighborhoods can provide.

Dan Slack, Baker Development

Dan Slack, Baker Development

This can be achieved either through ground-up development projects like McDonald’s soon-to-open headquarters at 1035 W. Randolph St., or adaptive reuse projects such as 1K Fulton, a former cold-storage facility that now counts Google among its tenants.

Yet as rents in these submarkets continue to climb, office users are starting to ask whether they can get the same space for less money in equally desirable locations. For many, the answer is a resounding “yes.”

New opportunities

While neighborhoods near the CBD such as River West and Pilsen have benefitted from this office “ripple effect,” Chicago’s recently rezoned North Branch Industrial Corridor is perhaps the most alluring and uncharted territory for office users in search of space outside the downtown core.

Surrounded by Lincoln Park, Bucktown, Wicker Park and Logan Square — four of the city’s most desirable neighborhoods for the educated workforce that employers want to attract — this 760-acre stretch of land flanks both sides of the Chicago River. The area has become increasingly dormant as the factories and warehouses that were protected by the former zoning restrictions close their doors or relocate.

The new land-use guidelines, adopted in July 2017, call for a combination of residential and commercial uses that, along with infrastructure projects, will bring billions of dollars in investment to the area. Lincoln Yards, a newly unveiled mixed-use district planned on the former A. Finkl & Sons steel plant within the North Branch corridor, is considered a frontrunner on Chicago’s list of proposed sites for Amazon’s HQ2.

Even if Amazon fails to deliver, there are a number of major corporations that could easily take the e-commerce giant’s place. With more than 70 acres of space to fill in Lincoln Yards alone, the corridor presents a rare opportunity to create a campus-like environment that will ultimately house both businesses and the workers they employ. Current plans call for residential, office, retail/restaurant and entertainment uses, including a stadium that would serve as a sports and concert venue.

In addition to offering proximity to the river, major expressways, public transportation and the neighborhoods where many of Chicago’s young professionals live, the North Branch corridor, like other emerging office submarkets, is attractive to office users due to its relative affordability — for now, at least.

Taking into account rents, property taxes and operating expenses, the total occupancy cost of Class A office space in the corridor can be up to $20 per square foot less than comparable space downtown.

Saving costs

Non-CBD buildings also provide greater efficiencies that can further reduce expenses while increasing productivity. For example, with the larger floor plates of a low- or mid-rise building outside the downtown core, a tenant could occupy 25,000 square feet versus 30,000 square feet in a high-rise where columns and other structural elements reduce the amount of usable square footage.

These large floor plates provide work-style benefits as well, enabling entire departments to occupy a single floor. This leaves room for so-called soft space that results in more frequent interactions and collaboration among employees. No longer are these efficiencies limited to the suburbs.

Of course, location and value alone aren’t enough to sell office users on non-CBD locations like the North Branch corridor. Developers must also consider the type of office space needed to meet the needs and demands of companies that rely so heavily on technology.

Features like powerful electrical systems, data delivery systems and thermal comfort and consistency are critical to the operations of these businesses. Yet they’re hard to find in and around the North Branch corridor due to the shortage of quality, Class-A options that currently exist.

Conversion considerations

Anticipating the demand for office space in this area even before the new zoning was adopted, our firm acquired a century-old industrial building at 2017 N. Mendell St. within the Lincoln Yards district and began converting it into a Class A office building with state-of-the-art infrastructure.

We added sustainable features such as programmable electrochromatic windows that automatically adjust the light and heat coming in through the windows, robust HVAC and electrical systems as well as high-tech functions like advanced fiber optics and key fob access.

The conversion of the exterior and core of the building is scheduled for completion in the first quarter of this year. The building will feature a rooftop deck overlooking the adjacent river and downtown skyline, dedicated parking spots for food trucks and murals from street artists like Hebru Brantley and Roa in the lobby and on the façades of neighboring buildings.

The project illustrates how office developers in emerging submarkets are combining the amenities users have come to expect with the neighborhood authenticity that only these fringe locations can provide.

The opportunity to meet demand for this type of product in an area that hasn’t yet experienced it is significant, as is the risk. But the smaller size of these developments, as well as their location in neighborhoods whose identities continue to evolve, make them a risk worth taking.

Like the innovators these buildings will house, we know success means connecting with early adopters that share our vision for growth and our desire to plant a flag in what is sure to become Chicago’s next great live/work/play destination.

— By Dan Slack, principal, Baker Development Corp. This article first appeared in the March 2018 issue of Heartland Real Estate Business magazine. 

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