Hundreds of industry leaders joined JLL Chicago last week to discuss Chicago 2025 and the city’s dynamic expansion. With 4,300 new hotel rooms planned, the lowest office vacancy in 16 years (10 percent), 4 million square feet of speculative industrial construction in the pipeline and 3 million square feet of office space headed to market, the next decade is going to be one for the books.
JLL Chief Economist Ryan Severino kicked things off with a broad-based market outlook, factoring in challenges of the past year from Brexit to an unexpected election result. Despite entering a 2017 filled with elevated policy uncertainty, the Chicago market’s universal truths are bolstering its investment appeal. Chicago’s still the third-largest metro economy in the U.S., with above average annual gross metro product growth and a diverse economy where no single industry comprises more than 20 percent of total employment. Going forward, our unusually high percentage of adults with undergraduate or graduate degrees will be of paramount importance in building on this economic momentum.
We’re definitely living in interesting times, agreed JLL International Director and panel moderator Bruce Miller. As a frequent partner with foreign capital on large, mixed-use projects, Magellan Development Group President David Carlins said he’s seeing investors from the Middle East to China taking a “wait and see” approach, with their top priority being U.S. economic growth. GLP COO and Executive Vice President Paul Loosmann, whose company is listed in Singapore and based in Shanghai, is seeing a global curiosity about interest rates more than policy. Fundamentals still feel strong in his logistics and e-commerce niche, and Loosmann sees a lot of growth built into the economy from a leasing standpoint.
During this expansion phase of the cycle, we’re in a unique period where every sector is firing on all cylinders in Chicago’s urban core, said The John Buck Company COO Dirk Degenaars. For Oxford Capital Group President and CEO John Rutledge, unprecedented residential development has created a virtuous cycle that feeds demand in the hospitality sector. In the past 10 years, Chicago’s downtown core has seen more population growth than any other city in the country. Corporate demand, convention demand, domestic and international tourism and O’Hare itself all continue to grow, providing a multi-legged demand base for Chicago’s hotel market.
Each sector is inextricably tied, said Carlins, pointing to the piles of packages that have overrun the lobbies of Magellan’s multifamily projects thanks to Loosmann’s flourishing e-commerce tenants. In addition to responding with ever-expanding package storage rooms, Magellan is finding a balance between shrinking units (affectionately dubbed “Midwest micro units”) to keep rents attainable and the never-ending amenity arms race as residents are driven into building common areas. This generation is paying for experiences, said Carlins. Why not give away a unit to a singer/songwriter or a chef in a building’s first year of lease-up and offer free concerts, music lessons or gourmet meals to residents?
As offices from startups to Fortune 500s expand into emerging markets both north and west, JLL International Director Meredith O’Connor said not showing her tenant representation clients these burgeoning opportunities would be a major oversight. Office density and height in these markets will remain to be seen as issues like the Planned Manufacturing Districts are worked through, but a look at formerly lagging markets like the East Loop shows that tenants want to be a part of transformations (i.e., Millennium Park and Prudential Plaza’s makeover).
In terms of investor interest in emerging markets, Degenaars said it takes a specific constitution to manage the risk vs. reward relationship. Rising construction costs are the biggest challenge today and building spec is incredibly difficult. When you bring mixed-use into the conversation, the challenge is making sure your retail adds value, instead of impairing it. What Chicago does offer global capital is a relative pricing advantage, added Miller, citing Korean investors that came here before branching into other U.S. markets. For Rutledge, Main and Main transactions rarely pencil, so Oxford leverages transitioning momentum within expanding “micro-submarkets” to execute opportunistic strategies.
As investors and developers across sectors compete on land parcels, most of the panel finds that office and residential usually win. Just look at how rents on brick and timber office buildings have doubled over the past five years, said O’Connor. But what’s inside the office is what matters, and companies don’t just ask for amenities—they expect them. Take JLL’s new cafe at its reimagined Aon Center headquarters. Getting out of your own space and into the cafe creates unexpected connections with colleagues you may not have seen in years. “It’s the collaboration space that unites people,” said O’Connor.