Lower Sales, Rent Prices Are Creating Valuable Opportunities For Empty Corporate Campuses

The metro Chicago office market over the past four to five years has shifted from suburban to urban dominance. Corporations seeking to attract and retain a younger workforce have relocated to the downtown core, abandoning the spacious corporate campuses that ruled the market in the 1980s and '90s. But bad news is good news in real estate and the growing surplus of vacated corporate campuses is creating valuable opportunities for forward-thinking, patient investors and developers as the suburban office market continues its steady resurgence.

MB Real Estate executive vice president Andy Davidson said that of the 18 suburban corporate campuses that are fully vacant, partially vacant or soon to be empty, only three are due to suburban-to-urban relocations. Seven are suburban-to-suburban relocations, six are a result of corporate consolidation, and two are from mergers and acquisitions.

There are three trends driving the real estate strategies of corporations: a renewed focus on financial flexibility, an emphasis on quality of office space over quantity, and the realization that denser developments with an amenity-rich environment can provide long-term cost efficiencies.

Davidson said the glut of vacant corporate campuses is driving sales prices and rent down, and investors are rethinking how to market these campuses in response to a changing corporate landscape.

The most recent example of this is Medline’s HQ move from Mundelein to Kraft Heinz’s former Northfield HQ. There were fears that the 70-acre Kraft Heinz campus would become a long-term liability in the north suburban office submarket. But Medline saw the space as an immediate opportunity to accommodate its rapid growth. Davidson said Medline was already in the process of buying and redeveloping AON Hewitt’s former Lincolnshire HQ, but switched gears on a dime once the Kraft Heinz campus became available because it could acquire the campus for significantly less than the property’s replacement value. The move to Northfield also put Medline in a better position to attract labor from the city than it may have been able to in Mundelein or Lincolnshire.

Investors are also looking at either full-scale redevelopments of vacated corporate sites that involve altering the layouts to enable multi-tenant use, or selling portions of vacant campuses to other companies. The most visible example of this is the Motorola Solutions campus in Schaumburg. Zurich North America bought 40 acres of the campus for the development of its new North American HQ. Motorola Solutions sold another 47 acres to Oak Street Real Estate Capital in a sale/leaseback, and the remaining 225 acres were sold to UrbanStreet Group, which is exploring a variety of mixed-use plans including a hotel, offices, housing and/or retail to transform the campus into a “destination of choice.”

The redevelopment question becomes harder to answer with properties in farther suburbs like the OfficeMax HQ in Naperville, where Columbia Property Trust is handing the property over to its lender, or the former AT&T campus in Hoffman Estates. Davidson said these campuses with large contiguous floor plates require significant change to be viable in the future.

“You need a monster tenant to take it,” Davidson said.

Another option would be to make it a reuse play for needs-based services, like a medical center.