Market Conditions Ripe for Office Acquisitions by Single-Tenant Users

Across the country, and specifically in the Chicago corridor that leads to the northwestern suburbs, a wide range of businesses are debunking the commonly held notion that urban migration is diminishing the suburban marketplace.

The evidence is indisputable. While Fortune 500 firms are leasing hundreds of thousands of square feet in Chicago’s suburbs, small to midsize firms are facilitating the expansion of their businesses by acquiring single-tenant facilities in the burbs as well.

Since 2014, 20 businesses in Chicago’s northwest suburbs have acquired buildings totaling more than 1.3 million square feet of space, according to Colliers International. The cumulative purchase price of these assets exceeds $97.1 million.

This level of activity compares favorably to statistics for the entire suburban marketplace that show 63 buildings totaling approximately 4.7 million square feet and valued in excess of $307.7 million were sold during that time (see table).

Four driving factors 

Jason Simon, Colliers International

Jason Simon,
Colliers International

This healthy level of activity can be attributed to a variety of factors, four of which we highlight in this piece.

Access to capital — Banks are lending again and exhibiting greater levels of caution after years of retreating to the sidelines. Additionally, the cost of capital is very reasonable, in spite of the fact there has been one interest rate hike and more are expected by the end of the year. This factor is providing incredible opportunities for businesses.

Alternative loan/financial programs — The Small Business Administration has a number of alternative loan programs that make it even easier to acquire, renovate and equip user-occupied buildings.

While these programs are even more popular when the economy is not performing at full throttle, it does provide another alternative for businesses even in an improved economy.

A time for growth — There is no denying the Great Recession impacted everyone, including small to midsize firms. Most businesses hunkered down and went into survival mode, delaying growth and expansion plans until more solid footing was achieved.

Although the current economy recovery hasn’t been marked by explosive growth, most companies and industries have fared well. As they execute aggressive or even simply modest expansion plans, many businesses will focus on their real estate needs and/or holdings.

Infrastructure improvements — While the previous factors would apply to all markets, the increase in user sales in Chicago’s northwest suburbs over the last two years can also be attributed in part to significant infrastructure improvements.

Improvements at interchanges in and around the Schaumburg area have enhanced the marketability and desirability of certain areas.

This is particularly true at the western boundary at Roselle Road and I-90 where a new four-way interchange is soon to be completed, and at Meacham and I-90 where two new ramps are being constructed allowing motorists to exit and enter I-90 westbound.

In addition to the transportation infrastructure improvements in the northwest market, there are several other factors contributing to the increase in user sales in this area.

A shortage of small and midsize buildings for space users is driving up demand. Consequently, prospective tenants are jumping on opportunities shortly after they come to market. Additionally, there is much greater certainty surrounding the business environment post-recession, and companies are ready to make long-term real estate decisions.

The cumulative effect of these factors is the strong pace of acquisitions among buyers of small to midsize single-user “flex” buildings ranging from 10,000 to 50,000 square feet. These buildings typically offer loading capabilities and storage, making them even more attractive to users in need of warehousing, distribution and office space.

Examples abound

The sale this spring of 2900 Golf Road in Rolling Meadows is one of the most recent examples of this trend among owner-occupied buildings.

Acquired by Arthur J. Gallagher & Co., the 48,000-square-foot, two-story office property is located on  a seven-acre site east of Golf Road and I-90, just minutes from Woodfield Mall. The property features 16,000 square feet of lower-level storage space and provides the capability for an expansion to the parking lot.

Gallagher is now renovating an adjacent property that serves as its global headquarters. The property at 2900 Golf Road represented an opportunity for Gallagher to secure additional space with immediate proximity to the new headquarters that will eventually house over 1,000 employees and make Gallagher one of the largest employers in Rolling Meadows.

Other notable transactions in Schaumburg include:

• 55 E. Commerce Drive, a 20,104-square-foot building that was acquired from Omron by Captive Resources as part of an expansion of its nearby headquarters.

• 1651 Wilkening Road, an 18,090-square-foot building that was acquired from Convergint Technologies by TMA as part of TMA’s expansion and relocation to the northwest market from the O’Hare market.

• 1000 E. Woodfield Road, a 204,500-square-foot building that Vinayaka Holdings acquired from Westport Capital Partners as part of an expansion for the business and a
value-add office investment for the principal owner of Vinayaka Holdings.

As long as economic conditions remain favorable — and reasonably priced capital is accessible — small to midsize businesses will continue to be drawn to acquisition opportunities. For some businesses, owning their own building gives them a certain sense of control that they can’t experience when leasing space.

— By Jason Simon, Principal, Colliers International. This article originally appeared in the June 2016 issue of Heartland Real Estate Business.

Content Partners
‣ Bohler
‣ Lee & Associates
‣ NAI Global
‣ Walker & Dunlop

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