By Ryan Ori, from Crain’s Chicago Business, 4th Quarter 2011 Article

Suburban Chicago commercial real estate prices are still declining amidst economic difficulties. Leasing trends, however, after a period of decline, remain relatively level.

Data from LoopNet shows suburban sale asking prices dipping below 2006 levels near price levels of the turn of the century (2000); and the trend line is still steeply down. This is likely due to an increase in commercial foreclosures and high vacancy rates, which put downward pressure on property values. There are a lot of underperforming properties out there and a large overall vacancy rate hovering around 16%. That trend leaves owners with few options: either subsidize the properties out of pocket, or if that option is not available, short sale or letting the property go back to the bank will follow. The last two alternatives push asking prices artificially lower. Even though all properties are not distressed, the majority of the properties that are selling are being bought well below market.

There is some good news though. Asking rents appear to be relatively level near 2006 rates. That leveling off will offer property owners a curb on declining values. With vacancy rates high, there is still work to do, but if rental face values stay even, owners will slowly regain the balance. The key will be to offer up front concessions as incentives and offset the average rent paid. The higher face rents will help keep the building NOI up after the concessions burn off.

The market has a long way to go, but owners have a lot to offer tenants if the lease is structured properly, and tenants have a lot to gain if they understand how to structure concessions and rent that benefits both themselves and the landlord.

By Andrew Davidson and Peter Westmeyer

Even though demand for traditional suburban office space is still retreating in suburban Chicago, the medical office market is faring well due to a number of factors. A growing–yet aging–population, technological advances in medicine, a shift in spending habits and the relative inelasticity of the healthcare industry are bolstering this region’s medical office sector, which has been largely sheilded from the negative effects of the recession. 

Also helpful has been the need for health systems to reach out into the community with outpatient service facilities, opening up opportunities for medical practitioners in the area. 

Although Cook County’s population decreased during the last 10 years, Chicago’s suburbs are expanding, according to the U.S. Census Bureau. The Chicago metropolitan statistical area (MSA) grew 4 percent over the last decade, led by growth in outlying areas such as Will, Kendall and DeKalb counties. Over the next five years, Chicago’s MSA population growth is expected to be 3 percent or more, furthering the need for healthcare providers in the region.

Of the overall MSA population, an estimated 11.2 percent is composed of people age 65 or older. That percentage will increase over the next few years as Baby-Boomers reach that threshold. And according to the Centers for Disease Control and Prevention’s National Center for Health Statistics, as they age, the number of doctor visits per person will increase as well. Advances in treatment, diagnostic technology and overall awareness have driven consumers to spend a greater portion of their income on healthcare in order to live longer and improve their quality of life. In 2009, U.S. consumers spent an average of 6.4 percent of their total expenditures on healthcare, nearly a percentage point higher than in 2007. Read More…

A sublease can offer solutions for both tenants seeking office space as well as tenants looking to be out from under a lease.

For a tenant looking for an office, subleases can:

• Offer space at a deeply discounted price.
• Allow tenants a short term lease.
• Provide tenants with the opportunity to rent high-end space at lower than average prices. For example: Say a tenant wants a 5 year term in a building that costs $20/sq.ft/yr. If the tenant finds a 2.5 year sublease in that building at $10/sq.ft./yr and negotiates an additional 2.5 year term, they pay an average of $15/sq.ft/yr. That’s a $5/sq.ft discount and a huge costs savings!
• Subleases often can provide furniture and data systems either in the price of the rent or at a steep discount.
• Utilities can often be negotiated into a sublease.

For the lease-holder tenant, subleases can:

• Provide financial reflief from the full expense of the lease.
• Allow a downsizing opportunity.
• Provide the tenant an option to relocate.
• Offer a solution for a quick dispense of furniture and equipment that may otherwise be difficult, expensive or time consuming to hold or sell.
• Allow the tenant a way to maintain a good relationship with the landlord and prevent any legal issues from arising.

If you are either a tenant seeking an office, or a tenant looking to sublease space, contact Olivia Czyzynski and Kevin Baran to help you. They can provide a search of all available subleases in the market place and help you negotiate beyond the sublease term if such an option is of interest; or they can help you professionally market the space you have avaialble for lease.