Office Locations

Chicago
200 S. Wacker Drive
Suite 700
Chicago, IL 60606

Rosemont
6250 N. River Road
Suite 11-100
Rosemont, IL 60018

First Quarter 2015

Workplace strategy, the most recent buzzword in commercial real estate, has caused organizations to take a step back and reevaluate both their work patterns and environment.  So what exactly is workplace strategy and why should your organization do what so many others have and reassess your environment and long-term business objectives?

Workplace Strategy is defined as an alignment between a company’s work patterns and environment in order to help enhance performance and reduce overall costs.  So what does that really mean to your company?  It means that in order to become more efficient, attract and retain talent and improve upon employee commitment you have to turn to your work space.  Some key questions to ask when evaluating your work environment are:  What type of culture does our company want to exhibit?  How do we get our employees excited about coming into work every morning?  How do we appeal to a talented new workforce and keep them long-term?  All of these questions will ultimately lead you to reexamining your office space.  With a recent shift in the workforce, millennials are now becoming the majority while many of the so-called baby boomers are nearing retirement.  So what does that mean for your business?  

Creating a Flexible Work Environment

According to the United States Department of Labor, “the typical young person holds an average of nearly nine jobs between the ages of 18 and 32.”  Finding and retaining quality employees is critical to an organizations long-term sustainability.  Flexibility is easily driven from how technology is revolutionizing the way we work.  Access to the Internet, widespread use of e-mail and the commonness of smart phones has all become the norm for millennials.  Because all of this technology is flexible, companies will be forced to adapt and allow employees to work from home or out of office.  

Upgraded Employee Amenities

Those who remain in an office environment will expect their employer to provide a collaborative work environment with increased amenities.  A perfect example of this is Google, whose offices are designed with bright colors and ergonomic furniture.  They provide their employees with amenities such as free food, exercise classes, scooters and even spa treatments.  Although Google is an extreme example, the new workforce is expecting more and more amenities from their employers since a vast majority of their time during the week is spent in the office. 

Efficiencies throughout the Company

In order for a company to reach their long-term goals, which likely include a growth plan, they need to first re-evaluate efficiencies throughout their portfolio.  How efficient are your current office spaces?  Pre-recession space was king; post-recession companies started looking at cost saving strategies.  Reducing the company’s footprint to become more efficient is one of the preeminent strategies in reducing overall real estate costs.  Inversely, companies who are in the process of growth should consider adopting workplace strategy early on to help build the foundation for long-term employee retention and improved business performance.

CBD Rents Normalizing Post-Recession

Despite vacancy increasing this quarter and absorption decreasing, asking rents in the central business district continued to rise.  Although most real estate advisors would argue that increased vacancies would lead to a tenant driven market, increased rents and smaller concession packages are proving this theory wrong.  So what is happening?  Asking rents plunged to an all-time low when the recession took place, making the market a very tenant favorable one.  Very generous concession packages were being supplied by Landlords to attract tenants to their building.  Over the past few years we have seen rents slowly increasing and vacancy decreasing, until this quarter.  The vacancy rate this quarter dropped 1.8 percent when compared to the first quarter of last year. Rents, however, increased from $33.52 per square foot to $35.84 per square foot.  Landlords are attempting to normalize rents and lower concession packages without scaring away potential new tenants.  Regardless of this abnormal trend, the overall outlook on the market is positive from both tenants and landlords alike.  Tenants are evaluating their businesses and looking towards the future, while Landlords are steadily increasing rents in preparation for a decrease in vacancy down the road.

Class C Inventory Reduces Again

This year’s first quarter didn’t bring many new surprises, but it did bring a lot of frustration for class C tenants.  Over the past few years the Chicago Business District has seen many class C buildings being absorbed by developers who are converting them to new uses such as boutique hotels and apartment complexes.  As a result, inventory has significantly decreased and rents are steadily increasing due to a greater demand for space.  Businesses are being forced to find new spaces at much higher rents than they are accustomed to paying.  This poses a larger concern for small businesses whose rents are a vast majority of their overall operating budget.

As depicted in the graph above, inventory has decreased over the past four years by a sum of 3,057,789 square feet.  Rents have gone from $22.57 per square foot in 2012 to $25.58 per square foot in 2015 and the overall vacancy rate has decreased by 4 percent.  The recent conversion trend is anticipated to continue, but with some hesitancy from developers.  The increase demand for class C space, along with escalating rents are giving some developers second thoughts as to if they want to convert the buildings to new uses or take advantage of the opulent rental stream they can achieve from office tenants now.  


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The Burden Corporate Solutions Team is pleased to have an opportunity to provide an overview of our corporate real estate service lines of transaction management, lease administration and portfolio strategy.

Although most real estate advisors would argue that increased vacancies would lead to a tenant driven market, increased rents and smaller concession packages are proving this theory wrong.

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Chicago
6250 North River Road, Suite 11-100 Rosemont, IL 60018 United States | Tel: +1 847 698 8444