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Despite rising construction costs, and uneven rents, the Chicago real estate market remains strong, according to a June 5 panel discussion at the 5th Annual RealShare Chicago Conference moderated by Jenner & Block Partner Donald I. Resnick.
Mr. Resnick, Chair of the Firm’s Real Estate Practice, opened the discussion that addressed the question, “Could falling vacancies, rising rents and stabilizing construction costs lead to a wave of new development downtown and how would this impact the market?” The panelists included Robert Chodos, Principal at Colliers Bennett & Kahnweiler, Todd Lippman, Executive Vice President of CB Richard Ellis, Jack McKinney, President of JF McKinney & Associates, Drew Nieman, Principal at The John Buck Company, and Jeff Patterson, President and CEO of Prime Group Realty Trust.
The current trend of rising Class A property prices is a direct result of the infusion of out-of-town buyers from the East Coast, Mr. Nieman said. While Chicago’s real estate taxes are among the highest in the country, he added, people and businesses are moving to Chicago because rents are much lower than in other cities, such as San Francisco or New York.
In addition, there is an “increasing disparity between old building rents and new building rents because of rising construction costs,” said Mr. Patterson. While “big tenants” like law firms and accounting firms are eagerly leasing new office space, the situation could prevent smaller businesses from improving their workspace, because it may be more cost-effective not to relocate, added Mr. Lippman.
However, the panelists concluded that the outlook for the Chicago real estate market remains optimistic, especially in light of the “booming market” of the West and South loop, and the possibility of Chicago hosting the 2016 Olympic Games.
“The ‘hot sites’ for businesses in downtown Chicago keep changing,” said Mr. McKinney, “they will only continue to move further west and further south.” Mr. Chodos agreed, saying, “Because the City still has ‘room to grow’ as far as new sites and neighborhoods are concerned, individuals and businesses are signing leases downtown years in advance.”