The national office market recovery can generally be described as uneven and slower than expected; and Chicago's Central Business District is for the most part representative of those same statements. However one industry, the technology industry, has been particularly active in hiring and leasing space throughout the downtown Chicago marketplace. In fact, the recent influx of established and startup technology firms indicates that downtown Chicago is emerging as a major technology center.
Representative of this trend is the fact that many of the largest lease transactions signed in 2012 were inked by technology firms relocating or opening new space in Chicago's downtown market. The most significant of these transactions, and the largest new lease signed in the CBD in the past seven years, was Google's 15-year, 572,000 square foot lease at 222 Merchandise Mart (The Merchandise Mart) in Chicago's Loop. In addition, nearly 10 other tech firms brought new offices to the Chicago market which will account for approximately one million square feet of absorption as these leases commence.
In a recent USA Today study completed by the National Venture Capital Association, Chicago ranks in the top ten cities across the country for technology start-ups. The study indicates that $750 million was invested in 79 tech start-ups in 2011. The growth of the technology market in Chicago is often linked to the City's cost of living and lower office rental rates as compared to the major hubs like New York City and San Francisco. However, Chicago area companies more often cite the downtown market's access to colleges and its young, talented and growing workforce as the significant aspect of its appeal.
Sears' eCommerce Development Division is another example of an organization that chose Chicago's Loop for its access to a young, dynamic workforce with high-tech skills. In an article published by Chicago Tonight, Sears' eCommerce Division is said to have grown from 25 to 200 people in the past four years, when the firm first relocated to the City from suburban Hoffman Estates. W.W. Grainger and Walgreens are also among the names of organizations that have relocated offices with high-tech careers to the downtown market in recent years, but it's not just big name companies making the move. The emerging tech trend includes start-ups and lesser known tech companies including Ifbyphone, which relocated to downtown Chicago from suburban Skokie, Illinois. Ifbyphone, like Sears, chose to relocate to gain access to Chicago's high-tech workforce and has indicated they plan to double their employee base within the next 18 months.
What's attracting the young, skilled workforce to downtown Chicago? The answer is simple – it's where the action is. The City is vibrant and active, rich with amenities and full of young people looking to stay close to friends and collaborate with colleagues. There's a growing sense of community. The new generation of workers is much more likely than their predecessors to focus on location as the primary factor for accepting a job versus finding a well-paying job in their field of expertise. They are focused on a new set of amenities and priorities. As a result, an increasing number of employers, especially in the tech industry, are honing in on the needs of their employees when considering their real estate strategies.
So is Chicago the new “Silicon City” or “Silicon Prairie?” That fact remains to be seen, but one could say that we have reached that “tipping point.” The growth of technology companies in the Chicago's CBD has been unprecedented, and it is expected that more technology companies will continue to follow suit.
Andrew Davidson is the EVP/Managing Director of Corporate Services for MB Real Estate. He can be reached at [email protected] and his reports on Chicago's “Market Beat” (the most recent highlighting statistics on Chicago's emerging tech market) can be found on MB Real Estate's Research Page.