Real Estate Forum - January 2013

NEWS FRONT
Retail Outlook: Mixed Bag for 2013

CHICAGO—Though some sources of uncertainty hindering spending will go away in 2013, Jones Lang LaSalle’s 2013 National Retail Real Estate Outlook doesn’t predict a whole lot of improvement for the sector this year. Despite continued stable pricing and pent-up demand for non-durable goods driving consumer spending slightly, uncertainties remain in buyers’ minds.

The general election is behind us, as is immediate fear of a fiscal cliff. Even so, risks to retail sales will include a potential spike in energy prices, natural disasters, geopolitical instability worldwide and shifts in buying patterns and online purchasing.

As a result, retail fundamentals suggest
that occupancy and rental rates will stag-
nate. Though some retailers will expand
aggressively, there is a concurrent trend
toward smaller firms. And as some chains
vacate big-box spaces or close altogether,
off-price department stores and other retail-
ers will work to backfill the space. Retail
trends for 2013 include:

Windy City Office Users Meet the New Normal

The most pronounced trend in the Chicago office scene in 2012 was the continued migration of corporate space users from suburban locations to the city. That trend will continue to drive corporate location patterns for at least another year, and will widen the already stark gap between the health of the suburban markets and that of Chicago’s CBD.

Technology firms are moving into the city; the financial services, energy, consulting and food service industries are growing their presence as well. We have seen a trickle of migration in the pharmaceutical and bioscience industries. The main reason so many industries are relocating to the city is that’s where the new talented labor is choosing to live. Employers want to attract young tech-savvy workers, especially those trained in engineering, mathematics and computer technology. Those younger professionals generally want to live in the city rather than the suburbs, at least in the early stages of their careers. And it’s not just recent college graduates who are choosing to live in the city. Couples with children, who a generation or two ago would have moved to the suburbs for a quieter environment and better schools, are now choosing to stay in Chicago to take advantage of the cultural opportunities and the broader selection of viable public schools and charter schools—and to avoid the high cost of commuting.

This renewed interest in Chicago’s CBD has led to higher demand for quality office product. Total CBD vacancy dropped almost a full percentage point in 2012 to 17.2%, with most of the vacancy found in the less desirable buildings. The city’s trophy

By Rick Schuham

office buildings are virtually full, and it’s very hard to find blocks of class A office space, with good views, of 50,000 square feet or more. Accordingly, after a five-year hiatus, we’ll finally see some development of new office product in Chicago’s CBD commencing in 2013. Two major projects are currently being discussed, and at least one of them is almost certain to break ground this year.

This addition of nearly two million square feet of prime space will create opportunities for tenants of corporate real estate. Owners of existing downtown Chicago office buildings will have to anticipate the needs of prospective new tenants, especially those moving into the city from the suburbs. Tenants, meanwhile, will have to use their space to attract the best employees.

As tenant representatives, we are asked by our clients to assist them in creating high-collaboration workplaces that pull employees back to the office. We’ve gone through the process of eliminating big offices and generating solutions with smaller, more functional cubicles, all in an effort to maximize space-use. There also has been a strong push for a mobile workforce over the past five years.

Today however, the need for teamwork has forced thought-leading companies to reconsider the idea of a far-flung workforce. With product lifecycles getting shorter, innovative companies want their people collaborating on-site, and they desire space that is internally mobile. Often, a company’s high-value employees will have expectations for their workplace that run contrary to what their employers think they want. Addressing that dissonance is the next challenge in creating high-productivity offices.

Rick Schuham is executive vice president, director and branch manager at Studley’s Chicago office. He may be contacted at rschuham@studley.com. The views expressed here are the author’s own.