Chicago Commercial Real Estate: 10 Things to Watch in 2020
Chicago, IL | January 08, 2020
The 2020 real estate market has hit the ground running, and you don’t want to be left behind as the Chicago central business district and suburban market determine the future. What factors are in play?
From the growing tech sector to the revival of coworking spaces, groundbreaking megaprojects and new city and state laws, we looked at the top 10 factors that will affect the local commercial real estate market over the next year. Within our list of the Top 10 Things to Watch in 2020, we attempt to determine how the chips—for better or for worse—will fall.
WHAT CAN WE EXPECT FROM MAYOR LIGHTFOOT’S SECOND YEAR IN OFFICE?
A tumultuous teacher’s strike, a hard look at affordable housing, and approvals for the Lincoln Yards megadevelopment despite City Hall critics are just a few of the notable moments from Mayor Lori Lightfoot’s first year in office. What can we expect from Lightfoot’s office in 2020? One battle she will face, particularly relevant to CRE, is curtailing aldermanic privilege. Aldermen will not give this primary source of power up without a fight, but opponents believe these privileges are linked to the corruption Lightfoot has promised to eliminate. Real estate developers would certainly have her back in this clash, as there is nothing worse than the unpredictability that they face when planning projects subject to the whims of aldermen.
WILL THE POST-WEWORK APOCALYPSE TRANSFORM INTO COWORKING 3.0?
Shining star WeWork has crashed down to Earth, though it is not necessarily out for the count. The company that was once helmed by founder Adam Neumann—who’s essentially been forced to cash out and is now in an advisory role—has stopped its fiscal hemorrhaging by laying off 2,400 employees. SoftBank has also extended a stimulus of another $3 billion in unsecured debt. However, there is still significant concern about their ability to uphold their lease agreements.
Of course, WeWork isn’t the only coworking game in town. Will other coworking platforms be able to profit off WeWork’s missteps? Will WeWork crawl out of the hole they’ve dug? Even though coworking will surely survive, the leasing gravy train is likely to slow down. Do not expect another 600,000+ SF of coworking leasing activity in 2020.
WILL THE UNCERTAINTY FROM PROPERTY TAX CHANGES LEAD TO MORE INVESTMENT STAGNATION IN 2020?
Chicago CRE investment sales took at deep dive off a steep cliff in 2019, primarily due to the uncertainty regarding the future of property taxes. The new Cook County Assessor, Fritz Kaegi, is making much needed, drastic changes to the property assessment process, but this is causing panic for underwriters everywhere. Reassessing every property in Cook County is no small task, and the assessor’s office is not even going to begin looking at commercial real estate in the CBD until 2021—and property owners won’t really know how their tax bill will be affected until mid-2022. However, Mr. Kaegi has responded to the outcry by creating a handy “Property Tax Rate Simulator Tool,” designed to add some transparency and confidence to the current uncertainty. Will it be enough to assuage investors fears? Or will 2020 be another stagnant year in the investment game?
DOES CHICAGO HAVE TOO MUCH SHADOW SPACE TO FILL?
There has been plenty of leasing activity for new office developments in Chicago. Unfortunately, that leasing activity has created over 3.8 million square feet of shadow space in existing buildings. Approximately 1.8 million square feet of that shadow space will be vacated by relocating tenants in 2020. Will the large blocks left behind be snatched up by large tenants looking for immediately available space? Or will it all have to be leased piecemeal by smaller tenants over the years?
WILL THE CENTRAL LOOP HAVE TO REINVENT ITSELF?
Speaking of shadow space, the Central Loop has the lion’s share of it. Tenants moving to new developments will be leaving over 2.3 million square feet of space behind in the Central Loop, approximately 1.1 million square feet of which will be vacated in 2020. The Central Loop submarket has traditionally thrived as Chicago’s financial district, but will have to reinvent itself in the coming years as large banks move to the West Loop.
WILL THE THOMPSON CENTER FINALLY GET SOLD?
The governor’s office recently announced that a team led by Ernst & Young Infrastructure Advisors will help the state sell the maligned and neglected State of Illinois building, known as the Thompson Center. This will shift the workplace of the many state employees that currently work in the building to somewhere new. The large site in a central downtown location has plenty of redevelopment potential, but expect an outcry from historic preservationists who have been pushing to landmark the postmodern icon despite lack of affection from most of the population.
SUBURBS — WILL ANYTHING EVER HAPPEN?
There was no suburban office real estate boom in 2019, and don’t expect a big boom in 2020 either. However, with significantly lower rental rates and fears of substantial Cook County property tax increases on the horizon, some suburban office markets are getting extra consideration. Recently repositioned Class A office buildings are likely to see more leasing activity in 2020 than they have in many years.
WILL CHICAGO’S TECH SECTOR CONTINUE TO GROW?
Tech job openings in the Chicago area grew 22.7% in November year-over-year. Uber, Glassdoor, Google, Salesforce and more have already made plans to expand further in the Windy City. As both the cost of doing business and the cost of living grow to astronomical proportions on the coasts, expect to see more Silicon Valley companies establishing or expanding Chicago offices.
WILL MEGAPROJECTS THRIVE IN 2020?
With plans to begin infrastructure work on Lincoln Yards in 2020, Chicago’s sometimes controversial megaprojects are less of a real estate pipe dream and more of a reality in 2020. The 78 in the South Loop also has the approvals it needs to exit the theoretical stages. Other developments once thought dead, like One Central, are seemingly back on the table as possibilities. However, the one thing they all need to really move forward is a large office tenant. At least one megaproject is likely to land a mega-tenant commitment in 2020 – which project are you betting on?
HOW WILL THE CHANGING SOUTHWEST LOOP CONTINUE TO EVOLVE?
Chicago’s Southwest Loop has long been a desolate and mostly forgotten section of the CBD, but all of that is about to change. Tenants are beginning to move into the massive Post Office redevelopment and renovations to the building will include a large riverfront public space. The major renovation of Willis Tower’s base is finally coming to fruition. And the ground has officially broken on the new Union Station redevelopment at 320 S. Canal, the BMO Tower. How quickly and in what ways will the influx of thousands of office workers make the area more vibrant?
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