A fully occupied, 32,000-square-foot office property in Chicago’s Oak Lawn sold above market rates last week after renovations aimed at attracting pandemic-era workers.
The buildings at 4544 and 4550 W. 103rd St. sold for $3 million as part of a 1031 exchange after some of the Class B office space was converted into micro suites, according to Marcus & Millichap. That works out to $96 per square foot, $4 above the average for office buildings within a three-mile radius of Oak Lawn, according to Rawly Lantz, principal at Cawley Commercial Real Estate. The buyer was an Oregon doctor.
While suburban offices experienced an all-time high vacancy rate of 26.9 percent last quarter, that hasn’t translated into the expected buyer’s market. That may be because landlords aren’t cutting rents, favoring abatements instead, meaning that the net operating income on many buildings hasn’t fallen dramatically.
“Buyers expect lower rates,” Lantz said. “Sellers are holding out for an end to the pandemic,” and the market hasn’t adjusted.
The Oak Lawn building micro suites are filled by the self-employed and people who are fed up with working from home, according to Marcus & Millchap’s Mitchell Kiven, who represented the seller and found the buyer.
“The micro-suite component only takes up 20 percent of the building, but the vacancy rate of suburban offices is 20 percent,” Kiven said. “It enabled them to change the delta and fully rent the building.”
Before the renovations at 4550 W. 103rd St., tenants in the two buildings were usually doctors or lawyers, and it sometimes took two or three years to find a new tenant whose needs matched the space. Since breaking down some of those suites into eight-to-10 micro-suites apiece, the buildings have had a waitlist. Those tenants pay more per square foot yet keep monthly expenses lower than they would in a larger space. The property has 32 tenants.
“It’s a classy WeWorks,” Kiven said. “They always felt if someone left they could backfill it pretty quickly.”