Each month, HSA Commercial profiles a broker at our firm as part of our HSA News & Views blog. In this edition, we talk with Wayne Shulman, senior vice president of the Corporate Real Estate Services division. Wayne has been with HSA since 1987 representing both tenants and landlords in leasing, selling and marketing their properties.
HSA: What would you say is the state of the office market for 2012?
Shulman: The current office market in the Chicago CBD continues to benefit tenants as there is still a large inventory of space that has yet to be absorbed. While larger tenants—those above 100,000 square feet—may have somewhat limited options, the smaller tenants can really find space anywhere and will likely gravitate to availabilities in the Class A office buildings where they can receive the best possible amenities with an aggressive deal. As a rule-of-thumb, tenants should expect to see improvement allowances up to $5 per square foot per lease year and one month of rent abatement per lease year.
HSA: The current situation sounds very similar to 2011. How do you think the office market has changed?
Shulman: In 2010 and the better part of 2011, the Chicago office market was plagued by “zombie” buildings where undercapitalized landlords were unable to provide the necessary funds for improvement allowances and commissions in order to execute deals. As a result of the influx of investment capital, many of the CBD office buildings have now traded hands or the loans have been modified, which has put these landlords in a better position to offer the types of incentives necessary to secure tenants. Naturally, those owners are aggressively seeking to fill the vacancies created by the previous “zombie” landlords and will add more downward pressure on rents.
HSA: Class A office and other “trophy” assets seemed to be trading the most last year. What does this mean for the Class B and Class C buildings?
Shulman: The most likely outcome is that B & C buildings will continue to suffer. Many of these properties require investments in infrastructure to meet the physical and technical space requirements of the average tenant today. However, many owners have not seen rent appreciation for over a decade, and it’s hard to justify those sorts of capital expenditures when the benefit is unknown as there is still that large inventory of Class A space competing for tenants.
Since entering real estate in 1978, Mr. Shulman has negotiated more than 700 leases and numerous sales and has been involved in virtually every kind of office lease imaginable throughout the Midwest with particular focus on the greater metropolitan Chicago area.