Get in the Loop: What Owners Need to Know (Now)
Chicago, IL | October 04, 2019
We know what challenges the Central Loop faces when competing with Fulton Market, River North, and West Loop for big tenants, and we’ve established in our previous blog posts that property owners and leasing brokers need to look outside their individual buildings and reimagine the neighborhood as a whole. But how do we accomplish that in practice?
On September 25th, MBRE’s Kevin Purcell gathered experts from all sides of the issue to discuss what it will take to transform the former Financial District into a go-to destination where people actually want to work, live, and play. We were joined by Hartshorne Plunkard Architecture’s Ray Hartshorne, Stone Real Estate’s John Vance, Lisa Dziekan of World Business Chicago, Torque Real Estate Marketing’s Eric Masi, Tim Compton from ActiveCampaign, and Underscore Hospitality’s Erling Wu-Bower and Josh Tilden, the creators of premier restaurants Pacific Standard Time and Laurel Room.
Not only is the Central Loop losing out on tenants like Glassdoor and Mondelez to trendier neighborhoods, but the district will also have nearly 3 million square feet of office space vacated over the next few years, contributing to a vacancy rate that will be higher than during the Great Recession. Big banks that once saw the Central Loop as a natural choice are moving out and choosing new developments instead of refurbishing existing spaces.
This may appear to spell doom for the once bustling city center, but as our panelists discussed, financial institutions moving out and a new swath of vacant office space may be the perfect recipe for the Central Loop to reinvent its stuffy image.
The first step in this transformation process is for Central Loop property owners to recognize what the new breed of tenant wants, which has been heavily influenced by the tech industry. “Companies look to tech for new ideas on how to do business, and service industries like commercial real estate are consequently affected,” said Mr. Hartshorne. “Tech was the first to focus on how the office influences their bottom lines, and that has dramatically changed what today’s tenant wants and how commercial real estate professionals have to deliver.”
Tech’s shift in focus stems from reprioritizing real estate needs in terms of attracting and retaining talent, not location as was once the primary concern for businesses. And putting talent first for tech means catering to a younger workforce with different expectations and lifestyles than previous generations. For the office itself, that usually means a much less formal environment, open floor plans and collaborative areas, private bars and terraces, and in-building perks like fitness centers and bike storage. But what happens outside of the workplace is arguably just as important – if not more so – for keeping millennial and Gen Z workers happy. Namely, easy commutes, trendy retail and dining options, and pedestrian-friendly infrastructure.
According to Mr. Compton, his team at ActiveCampaign determined that the Central Loop was a no brainer based off of a company-wide survey and transportation analysis. Convenient location was a high priority for the tech company’s employees and the former Financial District was easy to get to no matter where they were coming from. However, ActiveCampaign’s young professionals preferred to travel further distances over lunch and after work for better food and retail.
This may seem like a straightforward fix for the Central Loop, but as we previously discussed, property owners are not always willing to risk signing into a lease agreement with a new concept restaurant versus a high-credit tenant like CVS or a retail bank branch. Similarly, restauranteurs are unlikely to take the risk with their young business in a neighborhood that’s deserted after 5pm and on weekends. As Mr. Wu-Bower made clear, destination restaurants like Pacific Standard Time make a lot of their profit from alcohol sales at night, not from lunch.
But bringing better food to Central Loop is not a lost cause, “As long as owners and restauranteurs can achieve a true partnership,” said the chef. According to Mr. Wu-Bower, property owners in the Central Loop should consider the potential long-term benefits of having unique restaurant concepts in the base of their building versus the short-term risk. What this might look like in reality is partnership-based lease agreements where rent is truly contingent on revenue, as well as offering more in TI allowances, thus giving restauranteurs greater freedom to reinvent the space.
This may seem like a big ask from a smaller, local business fighting to survive in a highly competitive market, but having more unique options, like Dark Matter coffee versus Starbucks, is what today’s office worker wants, according to Stone Real Estate Principal Mr. Vance. Taking on some risk for a new concept or a small but more interesting retail tenant can make your property – and the Central Loop as a whole – more desirable for current and prospective tenants alike. This is the type of forward-thinking mindset property owners need.
Better choices for food and shopping can contribute to a better overall experience for people who work in and visit the Central Loop, but that’s just a start. Members of our panels also discussed the district’s lack of greenery, outdoor space, and bike/scooter-friendly roadways that you see much more of in Chicago’s trendier neighborhoods. Street art, such as sculptures, large murals, and regular live music can also create a sense of culture and vibrancy, explained Torque co-founder and creative lead Eric Masi.
Of course, property owners don’t control infrastructure spending for the Central Loop. But a commitment from the commercial real estate industry to collaborate on reinventing the neighborhood’s image may be what it will take to convince City Hall that the Central Loop holds the same promise as Fulton Market, River North, and West Loop.
Our panel for Get in the Loop: What Owners Need to Know (Now) gave us some great ideas for how we can make the Central Loop a go-to destination, but we’ve only just scratched the surface. Our next step is to begin the collaborative process and put these ideas into action. Stay tuned for more information and ways you can get involved.