Difference maker: Uber’s monster lease at 601 W Companies’ Old Post Office could transform local office market
This article originally appeared on The Real Deal Chicago.
A few years ago, when Allen Rogoway was working with corporate clients seeking to set up offices in Chicago, he would almost never mention the southwest portion Downtown. If that area did seem like a good fit to his client, he would quickly dismiss the idea.
“It was just so sleepy,” said Rogoway, now managing principal at Cresa Global.
What a difference one major redevelopment project — and one major tenant — makes.
Uber’s announcement this week that it will take 463,000 square feet in 601W Companies’ Old Main Post Office redevelopment will likely boost its visibility and could catapult it as a top draw for tenants in the city, industry pros say.
The ride-hailing giant’s huge lease could also help expand the central business district, revitalizing an overlooked area and making it a more attractive draw for tech companies, industry players added. That’s a lot of hope for one lease, but it may not be so far off.
“Now, all of a sudden, it’s really dynamic, Rogoway said of the area. “I’ll admit when I was wrong. I didn’t see it.”
New York-based 601W Companies bought the long-vacant, 2.5-million-square-foot post office complex in 2016 for $130 million. Since then, the firm has rebranded it Old Post Office and undertaken a massive redevelopment at the 433 West Van Buren Street location.
It has signed tenants including Walgreens, Kroger and ad agency AbelsonTaylor. The Chicago Board of Options Exchange is also said to be negotiating for 175,000 square feet there.
But Uber is its biggest fish so far.
The company is just the latest technology firm with a major presence in Chicago. Its 10-year lease at the Old Post Office is the fourth largest in the last five years, trailing only Bank of America, Salesforce and BMO Financial Group. Each of those firms signed at least 500,000-square-foot leases in the last few years.
But Bank of America and BMO are just reshuffling their Downtown office presence, while the Uber and Salesforce leases are new, and represent dramatic expansions of both companies’ local office footprints.
Tech companies are likely to push ahead as the driving force behind Chicago’s office market in the future, office brokers said. That’s a good thing, they said, for the most part.
Downtown office vacancy fell in the first quarter of 2019 to 13.1 percent, thanks in part to those tech firms. But there are signs of a slowdown, with tenants collectively looking for 2 million fewer square feet than last year, according to an NKF survey. Worries over taxes and the economy led to investment sales in the Downtown office sector hitting a two-decade low this year, an MB Real Estate report showed.
Experts say technology firms that have moved into the city in part to attract a younger workforce have proved to be vital.
“The tech sector is seeing Chicago as a great alternative to San Francisco and New York,” said David Burden, principal at Colliers International Chicago. There’s affordable housing, a good labor force. And there’s available [office] space.”
Uber had its choice of buildings like Riverside Investment & Development and Howard Hughes’ 110 North Wacker, an under-construction 55-story office tower that’s had similar pre-leasing success — and is on the same delivery timeline as the Old Post Office. Then there are the Fulton Market office developments in the works, and the huge swath of the Central Loop that will be available for rent once several big banks decamp for the West Loop and elsewhere.
For one, the property has the largest floor plates of any new project, with the only comparable one being Brookfield Asset Management’s ongoing redevelopment of the top floors of the historic Macy’s building.
The Old Post Office’s status as a historic property, as well as its location in an up-and-coming area, could also prove to be a draw, Burden said.
“It’s more of a business-casual environment, where you can walk in, in jeans and a backpack,” he said. “At 110 North Wacker, you’ll have bankers and lawyers. They’re doing well, too. It’s just a different feel.”
A redevelopment project, like the Old Post Office, is also generally cheaper than a ground-up development, said Lisa Davison, vice chairwoman at Savills. Davidson represented investor Bill Davies in the giant property’s sale to 601W Companies. The project’s tax breaks because of its landmark status also likely make it a good deal for tenants looking for huge spaces, she said.
It is not, however, the only game in town.
Blackstone Group’s Willis Tower redevelopment, the Union Station office tower project, and eventually, Related Midwest’s The 78, are also expected to provide a collective jolt to the area, industry pros said. ]
Demand from tech companies will be key to filling the hundreds of thousands of square feet coming online, but a looming recession will be an x-factor, brokers said.
“For sure, that can have negative consequences,” Davidson said of the uncertain economic outlook. But, she added, “Chicago has been well positioned, with our economic base, talent pool and our cost of living.”
CBRE’s Paul Reaumond and Ian Murphy, who represented Uber in the lease deal, declined to comment.