Bargain leases in Chicago’s Loop draw a new group of tenants

It’s no secret that companies have been downsizing their spaces in the wake of the pandemic and, in many cases, leaving the Loop for trendier digs in Fulton Market.

But a budding trend is unfolding in the wake of those moves. The Loop spaces companies are leaving behind are available for lease at bargain rates, making it possible for smaller firms and nonprofits to move into nicer spaces than they would otherwise be able to afford.

“There is such a high vacancy rate in the Loop that now is a good time for any organization to take advantage of the great deals out there,” said Valerie Hawthorne-Berry, senior director of facilities for Heartland Alliance, a Chicago-based human rights organization. Heartland Alliance is moving this November from an old office property at 208 S. LaSalle St. into a bright modern location in the East Loop with advanced conference facilities, a new fitness club and a giant food court.

“That deal could not have gotten done a couple of years ago when things were really hot,” said Andrew Davidson, executive managing director of Transwestern, who helped broker Heartland’s new lease.

The abundance of available space is making it easier for some firms to upgrade to offices with more amenities and natural light. Nonprofits, which typically don’t have excess cash for workplace frills, are among those that have been able to upgrade their spaces. And many organizations are finding that a spiffy new workplace can help get people back into the office.

“It’s made my commute so much more bearable,” said Grecca Gonzalez, senior strategist with Scale Marketing, which just moved from an old River North loft building to 515 N. State St., a Class A property with a modern fitness club, private nooks to take phone calls, modern conference facilities and small touches like an espresso machine. “When you walk in, there’s a sense of pride, you stand up a little straighter, and it’s a great feeling.”

Such opportunities are likely to become more common as employees work from home and companies keep shedding space, pushing the market’s sky-high vacancy rate even higher, Davidson said.

By midyear, 28% of downtown’s 160 million square feet of office space was available, a record high and up from 24.8% at midyear 2022, according to a Colliers International report.

“It’s not just for nonprofits, it’s for everyone,” Davidson said. “Obviously, as the market gets softer, and it’s going to get softer, we’re going to see landlords get more and more aggressive.”

Heartland Alliance toured eight or nine buildings before choosing 55 E. Monroe St., a 1.2 million square foot office and retail property owned by PGIM Real Estate, Hawthorne-Berry said. Landlords typically offered between nine and 12 months of free rent.

“That’s a substantial amount of money,” she said. “Landlords were really reaching out.”

Hawthorne-Berry estimates Heartland Alliance, which provides housing, health care, job training and other services for the unemployed, refugees, immigrants and many others, will save more than $4 million over the next few years.

“We will be able to put that money back into our programs,” she said.

Companies are still calculating how much space they need post-pandemic, and many that are signing new leases have decided they need less space.

“Everybody’s a little cautious, I don’t care if you’re a nonprofit or a company,” said Gregg Witt, a principal with commercial real estate firm Cresa. “You don’t want to overcorrect. If you rent 20,000 square feet and decide to go down to 5,000, you don’t want to later realize that you needed 9,000.”

JCFS Chicago, a social service agency that works with refugees, children, people with disabilities and others, has decided to shrink its downtown footprint, President and CEO Stacey Shor said. Many staff members work remotely several days per week, and the group no longer needs the 33,000 square feet it now rents at 216 W. Jackson Blvd., a Class C building constructed in 1899. This week the agency moves into 11,000 square feet at 230 W. Monroe St., a 1970s-era Class B property. Its new lease, which Witt helped put together, will save it $400,000 each year in rent.

“We are a nonprofit and those who invest in us expect their money will help someone get counseling and improve their mental health, or help a refugee resettle in Chicago, so we have to be good stewards,” Shor said.

And although 230 W. Monroe St. does not have the same amenities provided by the glittering new trophy towers along the Chicago River or in Fulton Market, it provides a health club, conference facilities and better-lit, updated offices.

“We also want clients to feel comfortable, and staff deserves the chance to work in a space that feels good,” Shor said. “In 216 West Jackson we have a warren of offices, some down dark hallways or without windows, but in our new space you’ll be able to see who’s in the office.”

Signing new lease deals can also get tenants out of financially troubled buildings, whose owners may have trouble maintaining the properties or funding improvements, said Davidson. Like an increasing number of downtown towers, the office portion of Heartland’s current home at 208 S. LaSalle St. had been ensnared in a foreclosure lawsuit, but the owners of 55 E. Monroe St. have no debt on the property.

“They have the wherewithal,” Davidson said. “You’ve got to start asking whether the building you’re in can perform, because it might be in receivership or could be on a watchlist.”

Hawthorne-Berry said Heartland’s new space, which will be less than half the size of its current office, is under construction and the building owners picked up the cost. It will have more open space, more windows, and rooms where employees can gather in teams or seek out privacy.

“We have a lot of cubicles and single offices at 208, and very little collaborative space,” she said. “If we went looking in 2017 or 2018, there would have been no way, from a financial standpoint, that the market would have allowed us to do this.”

Hawthorne-Berry has some advice for groups with expiring leases.

“Sit down, examine how you are utilizing your space, start having conversations with a really good broker and see what the market has for you,” she said.

Not every office user is shrinking. Gonzalez’s Scale Marketing outgrew its old office at 730 N. Franklin St., and the massive amount of vacant space on the market gave it the opportunity to expand and upgrade at a lower cost, said Managing Partner Morrie DeZara.

Five years ago, the firm occupied 4,500 square feet and employed about 10 people, but since then it grew to roughly 60, he added. And although Scale’s employees work remotely part of the time, most staff come downtown on the same two days so they can meet and collaborate in person with their colleagues, so a smaller footprint wasn’t an option.

“We also wanted to step up into an A office,” said DeZara, so Michael Heaney and Mark Montana, a brokerage team from Avison Young, found the firm almost 17,000 square feet of ready-made space on the 23rd floor of 515 N. State St. “We fell in love with it immediately.”

Derek Faust, a senior strategist at Scale, said he drives in twice a week from the north suburbs, and the sleek, modern space makes it easier to speak with clients and co-workers.

“At the old office we were on top of each other,” he said, “and here the space absorbs sound instead of projecting it, so we can talk with others without being shushed.”

And the bargain basement price isn’t even its best feature, DeZara said.

“This is a ‘wow’ space, and I’m confident this is going to help us hire and retain top talent,” he said. “We feel like we hit the jackpot.”