UNITED STATES

Technology tenants transform Chicago district into top office market

Rundown Chicago area is transformed from a wasteland into a trendy district thanks to demand for office space from technology firms

PUBLISHED : Wednesday, 17 September, 2014, 5:52am
UPDATED : Wednesday, 17 September, 2014, 5:52am

Chicago's River North, a district once notorious for its prostitutes and dilapidated warehouses, has become one of the hottest office markets in the US.

The neighbourhood has transformed from a wasteland in the 1970s to a trendy spot for living, dining and entertainment that is also attracting technology tenants. Yelp, the San Francisco-based business-review website, is one of the latest to lease space in the area, across the Chicago River from the central business district known as the Loop.

Chicago is among US cities benefiting from the technology boom as job growth in the industry boosts demand for offices. Start-ups and expanding firms alike are cramming into River North, drawn by its historic buildings and easy access to mass transit, pushing vacancies to the lowest in downtown Chicago.

River North office rents jumped 26 per cent in the past two years, the most for a hi-tech submarket behind only Redwood City on the San Francisco Peninsula and Manhattan's midtown south, according to brokerage CBRE.

"The River North activity is just off the charts," said Tiffany Winne, a senior managing director at commercial brokerage Savills Studley in Chicago, who has represented technology tenants.

The vacancy rate for the neighbourhood's 11 million square feet of offices was 10.8 per cent at the end of June, compared with 14 per cent for the 126 million sq ft in all of downtown, data from CBRE shows. Among companies based in the district is daily-deals website Groupon, which has 323,000 sq ft at its headquarters at 600 W Chicago Avenue, according to CoStar.

For more than half of the 20th century, River North was an industrial and storage hub. In the 1960s, the area started to decline as it lost its importance as a warehousing centre.

Developer Albert Friedman started buying buildings in the '70s, renting first to artists and photographers, when the neighbourhood was "pretty dangerous" - a "skid row" with drug dealing and prostitution, he said. He gave the budding community its name, in hopes potential tenants would "forget the somewhat seedy nature of the area", according to the website of the River North Business Association.

Friedman Properties now owns and manages more than four million sq ft of commercial real estate in Chicago, much of it in River North, where the company redeveloped the Reid Murdoch Centre, a former warehouse and food-processing plant on the waterfront built in 1914. The red-brick landmark, with its four-sided clock tower visible from part of downtown, is home to the headquarters of Encyclopaedia Britannica.

Today, the neighbourhood's mix of refurbished industrial buildings and new construction includes apartments and condominiums, cafes, nightclubs and hotels such as the Hyatt Place Chicago/River North.

"There used to be a time when you didn't want to walk through River North after dark," said Sharon Romack, chief executive of the business association. "Now River North is the place to be after dark."

A network of Chicago Transit Authority train lines, as well as bus routes running through the community, has helped draw employers. GoHealth, a health-insurance technology company, has been based in River North since 2006 and agreed this year to expand, leasing 42,000 sq ft of space on West Superior Street near some of its existing offices.

The company also rents offices in the Mart, a 3.6 million sq ft art deco property that was built in 1930 for department store chain Marshall Field & Co for its wholesale operations and known for decades as the Merchandise Mart. The landlord, New York-based Vornado Realty Trust, changed the name in a bid to attract more technology tenants.

Yelp agreed to take more than 50,000 sq ft in the Mart for its first Chicago offices. The firm will move into the space in January and plans to hire as many as 300 workers in the city in the next 18 months.

River North asking office rents averaged US$33.68 per square foot in the second quarter, up from US$22.47 four years ago, according to CBRE. Class A, or top-quality, offices in River North commanded the highest asking rents in all of downtown, at US$44.03 per square foot on average.

River North asking office rents averaged US$33.68 per square foot in the second quarter, up from US$22.47 four years ago, according to CBRE. Class A, or top-quality, offices in River North commanded the highest asking rents in all of downtown, at US$44.03 per square foot on average.

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