Suburban office bleeding worsens again as vacancy rises to new record

The Chicago suburbs have set another record high for office vacancies.

At the end of 2022, the amount of available office space across Chicago’s approximately 100 suburbs was 27.9 percent, breaking the previous record of 27.3 percent set at the end of the third quarter, Crain’s reported. JLL found the suburban office vacancy rate has risen for eight consecutive quarters now and is more than 22 percent higher than at the beginning of the pandemic.

The rocky market doesn’t seem to be improving much so far this year either.

An affiliate of UNICOM Global recently paid $7.4 million for the vacant 11-story office building at 231 North Martingale Road in the northwest suburb of Schaumburg, marking a big loss for New York-based LXP Industrial Trust and Davidson Kempner Capital Management.

Also in Schaumburg, The Real Deal first reported that East Coast real estate firm IndusPAD bought the mostly vacant 490,000-square-foot Windy Point office campus at 1500 McConnor Parkway from Jonathan Slager’s Bridge Investment Group at a steep discount. The buyer paid less than $24 million for the mostly vacant asset, down from the $74 million Bridge valued it at when it bought the property in 2018.

And in Northbrook, a venture of the Phoenix, Arizona-based real estate investment trust Orion Office sold an empty 197,300-square-foot office building to an unnamed buyer for about $2.5 million, a mere fraction of the $44.3 million it paid for the property in 2011.

Rough market conditions are hard to overcome even for office properties with a steady roster of tenants. In Evanston, George Carter’s firm Franklin Street Properties, based in Wakefield, Massachusetts, sold the approximately 195,000-square-foot property at 909 Davis Street to a New Jersey-based firm for $27.8 million, or about $142 per square foot. Despite the building being more than 90 percent leased, it still netted a loss for the sellers who paid $35.1 million for the property in 2011.

In addition, New York-based alternative investment firm Ares Management filed a foreclosure lawsuit against John Grassi’s San Francisco-based Spear Street Capital and its Swiss partner over an alleged default on a $30 million loan on the 483,000-square-foot building at 3800 Golf Road in Rolling Meadows.