Quote:
Originally Posted by SamInTheLoop
Interesting - I wonder if they'd seriously consider going completely spec. I'd say it's at least plausible as long as the downtown office market continues to show steady improvement. I mean, this is certainly one of, if not the best office site out there, and considering the fact that Buck is currently pushing the envelope with a launch with only 20% pre-leasing, and considering Hines' local track record over the last 5 years, it could happen...of course with that said I also wouldn't be surprised if the land an anchor tenant pre-launch sometime this year or next...
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Perhaps they are betting on premium rents...
Office vacancy report a study in contrasts
Newest towers doing great, but many others are suffering from lack of tenants and falling rents
By Susan Diesenhouse
Tribune staff reporter
Published February 24, 2007
Although downtown Chicago office buildings have slogged along with relatively flat rental rates for six years, the newest towers are generating significantly higher rents and have much lower vacancy rates than the average property, according to a new Skyline Review to be released next week for the Chicago market by Jones Lang LaSalle Inc.
Like similar reports that the real estate firm issues for Washington and Boston, the publication for Chicago, which will come out every spring and fall, graphically depicts the top downtown towers, their total square footage, how much space they have available and where in each building the space is located.
The report also contains statistical and analytical material on office leasing, rents, development and sales activity.
"It's a new visual and statistical way to understand the market," said Bill Rogers, a Jones Lang LaSalle managing director for tenant representation. "We're always looking for different and better ways to analyze it."
The Chicago publication highlights 51 towers. Each has more than 750,000 square feet and is either in a high-profile location, architecturally significant, has an especially well-known tenant, or was built or substantially renovated since 1985, Rogers said.
The overall average asking rent for the downtown office market at the end of 2006 was $26.83 a square foot, including taxes and operating expenses, a bit less than the $27.27 a square foot achieved four years earlier, according to Jones Lang LaSalle.
But in recently completed towers, tenants have leased space at rates that are at least 30 percent higher.
For instance, 111 S. Wacker Drive, a 1 million-square-foot, 51-story tower completed in 2005, has an average annual rent of about $36 a square foot, which includes $9.75 for taxes and operating expenses.
At 71 South Wacker, a 1.5 million-square-foot, 47-story tower completed in 2004, the average rent is about $46 a square foot, but that includes almost $19 for taxes and expenses, according to the research firm CoStar Group.
While these trophy properties are generating solid income flow, average downtown asking rents are thought likely to remain flat without strong job growth that would encourage tenants to seek more space.
Meanwhile, the proportion of space available for lease or sublease throughout the central business district at the end of 2006 was 14.3 percent, according to Jones Lang LaSalle. That is close to 50 percent higher than the 10 percent vacancy rate that characterizes a healthy office market.
But at 111 S. Wacker a mere 0.5 percent is available, and at 71 S. Wacker just 7.4 percent of the space remains to be leased, according to CoStar.
"This shows a flight to quality, especially among large corporate tenants to whom image is important and the latest technology is vital," Rogers said
Furthermore, once completed, many of these new buildings have been sold relatively quickly for strong prices.
Last May the 830,000-square-foot tower at 1 S. Dearborn St., completed in 2005 and more than 90 percent leased, sold for $350 million, or $422 a square foot.
This would seem to make the lure of new development irresistible in the 132.3 million-square-foot downtown market. In fact, about 4 million square feet of new office space is being built or planned for delivery in the next three years.
As a result, rents are likely to remain flat and landlord concessions generous for the foreseeable future, the report says.
As the Skyline report concludes, despite the substantial benefits of owning a new tower, "generally, it's a good time to be an active tenant in the Chicago office market."
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