MBRE Forecast: 10 Things to Watch in 2019
Chicago, IL | January 07, 2019
Every new year brings change, and major transformations are already unfolding in 2019 – especially in Chicago. A new political playing field, an uncertain economy, and a shifting paradigm for how and where companies choose to office leave a lot of big questions unanswered about the city’ future state of affairs.
MB Real Estate has put together this list of 10 things to watch in 2019 that will determine the fate of Chicago’s commercial real estate market to keep you informed throughout the year.
WHO WILL BE OUR NEXT MAYOR?
Chicago’s Mayor Rahm Emanuel announced that he won’t seek reelection in 2019. Rahm’s critics dubbed him “Mayor 1 Percent,” accusing him of boosting the city’s downtown activity at the expense of Chicago’s neighborhoods. Now that the race for mayor is wide open, strong contenders are jumping in. Two major issues facing this batch of candidates will almost certainly be reducing crime, as well as finding ways to improve economic conditions for the South and West side communities while somehow maintaining the CBD’s business interests. Will the next mayor provide a plot twist for Chicago’s tale of two cities, or will the status quo remain?
CITY AND STATE FINANCIAL TURMOIL
Will the sky finally fall or will Governor-elect JB Pritzker and a new mayor fix the financial mess we’re in? Sooner or later something’s got to give. Will it be property taxes? An employee head tax? Bankruptcy? None of these outcomes will be beneficial to Chicago’s office market or the community at large, but the uncertainty isn’t doing us any favors either. In a recent speech, Mayor Emmanuel proposed a number of ideas to finally stabilize city pensions, including a constitutional amendment to cut COLAs, revenue from legalized marijuana, and a city casino. Will the new mayor act on any of these ideas, or is the lame duck mayor blowing smoke?
CHICAGO'S MEGA-DEVELOPMENT SITES: WILL THEY ACTUALLY HAPPEN?
One upside of the Amazon HQ2 debacle was a forced jump start to multiple mega-development projects at The 78, Lincoln Yards, the Burnham Lakefront, and Tribune Media’s River District. Before leaving office, Rahm is determined to push through TIF deals required for these projects to see the light of day. But with no HQ2, developers must abandon hope of having the tech giant as a tenant, and planned office development on these sites will most likely need an anchor tenant to move forward. There do not appear to be enough tenants in need of the scale of office space that could support all these developments. Lincoln Yards, which may have the easiest time attracting an anchor tenant, is facing significant community opposition. With no HQ2 and other obstacles facing developers, which of these projects will continue to progress and which will sit empty for another decade?
TECH COMPANIES SHIFT FOCUS TO THE WINDY CITY
Now that the steady stream of corporations migrating from the suburbs to the CBD seems to be drying up, the next source of growth for Chicago’s office market appears to be West Coast tech companies looking to tap fresh talent pools and take advantage of competitive rental rates. For example, Google, SalesForce, and Facebook recently took on significantly more office space in the CBD. Glassdoor, Snapsheet, Foursquare, and Shiftgig have also recently opened offices in the city. Does this trend mean Chicago is officially a top-tier tech city?
Co-working is not really co-working anymore. “Flexible office” may be a better term, because that’s what WeWork and their cohorts are focusing on now, and it’s causing major market disruption. Today’s office occupiers are warier of opting into long-term leases and co-working companies are offering an alternative solution that meets their needs with maximum flexibility and less commitment. With these attractive new options, will companies decide the traditional leasing process is too onerous and futile? How will building owners respond to these changing expectations?
FULTON MARKET: BOOM OR BUST?
Fulton Market has been the go-to location in Chicago’s office market for some time now, transforming from mostly old meat packing facilities to luxury boutiques and swanky bars and restaurants. Now that planned office developments are finally coming to fruition we will see how strong the market fundamentals of the area truly are. However, are there enough companies willing to pay Fulton Market’s premium rents to support the 6 million square feet of new development in the pipeline, or are we looking down the barrel of a real estate bubble?
HOW WILL HOUSING AFFORDABILITY ORDINANCE AFFECT DEVELOPMENT?
At least for now, Chicago’s housing market is affordable compared to other major cities on the East and West Coasts. In fact, our housing affordability is a primary attribute of Chicago’s standard of living. However, the nearly 13,000 new downtown apartments built in the past 4 years are cost-prohibitive for most Chicagoans. As our high paid tech jobs grow, will we remain affordable or go the way of Seattle and other mid-sized cities that saw housing costs sky rocket? Conversely, will the city’s push for mandatory affordable housing minimums backfire and prevent new development, further exacerbating the housing affordability problem?
WHO IS GENERATION Z?
Speaking of aging millennials, what about Generation Z? As the youngest adults begin to infiltrate the office environment, will they have similar workplace expectations as millennials? Will their lifestyle choices pull real estate trends in a new direction the way their predecessors did?
WHAT ARE THE CHANCES OF RECESSION?
There is no shortage of experts pontificating on the inevitability of a recession just around the corner. However, with unemployment at historic lows and most key economic indicators in good condition, there are no clear storms on the horizon. What is there to worry about? For one, the stock market has been increasingly unpredictable, trade wars are brewing, national and International politics are disconcerting at best, and our national debt is growing at an alarming rate. Shall we go on?
THE FUTURE OF THE SUBURBAN OFFICE MARKET
Chicago’s suburban office market has never fully recovered from the recession. The highly sought-after millennial employees’ preference for an urban lifestyle created a corporate suburban to urban migration that boosted the CBD office market and left the suburban office market to struggle. However, some investors have placed their bets on a suburban renaissance despite little leasing activity, believing that older millennials finally having children will eventually move to the suburbs. Are employers ready to take a chance on the suburbs?
Stay informed: see more of MBRE's research and download reports here.