Tag Archives: vacant property

Office vacancies in Chicago suburbs hit record high

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The Chicago suburbs are also experiencing high levels of office vacancies:

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The office vacancy rate in the suburbs has ticked up again and is now at a record high. Real estate services firm Jones Lang LaSalle says the suburban office vacancy rose to 28.9% in the second quarter, up from 28.5% in the first quarter. A year ago it was 27.1% and at the beginning of 2020 it was 22.1%. The data is further evidence that companies are still shrinking office footprints as remote work continues. JLL says the suburbs have lost more than 3 million square feet of office space since 2020, nearly the same amount that was lost during the Great Recession that started in 2008.

If these office spaces are lost permanently, here are several things suburban communities would lose:

  1. Property tax revenue. These payments contribute to municipal budgets and might help reduce property tax burdens for residents.
  2. Prestige. Having office space and big corporations is a source of civic pride. Not all suburbs have this. These are visible symbols of economic success.
  3. Jobs within the suburb. Even if a majority of employees come from outside of the particular suburb in which the offices are located, communities and leaders can tout the number of jobs located in the suburb.

On the flip side, if a number of these jobs permanently move to people’s residences, particularly single-family homes, this might help redefine what the suburban single-family home includes. The suburban home might no longer be a strong, private refuge from the outside world, but instead be a combination workplace and home.

A wealthier suburb debates who affordable housing is for

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The Chicago suburb of Glen Ellyn has a proposal in front of it regarding transforming vacant hotels into affordable housing. Who might live in the affordable housing?

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Affordable housing advocates say the hotel site “checks all the boxes.” It’s accessible to public transit, schools and health care. It’s across the street from a park and within a quarter-mile of three grocery stores…

Exorbitant housing prices in Glen Ellyn keep entry-level teachers, police officers and health care workers from living in the town they serve, advocates say. Parents of young adults with disabilities say their children should be able to stay in their community as they gain independence, but affordable, supportive housing options are scarce…

But Glen Ellyn’s median home value was $465,200 in 2020 — nearly $150,000 higher than the county median. Smaller, more affordable homes are being demolished and replaced with larger ones as Glen Ellyn becomes more affluent…

Full Circle partners with other organizations to provide on-site supportive services. The Elgin complex offers transportation assistance, health and wellness programs, and case management. In Glen Ellyn, Full Circle would build units for people with disabilities and a range of incomes.

Affordable housing is not a concept some suburbanites want near them. They might see such housing as a threat to their property values and/or the local quality of life.

Of those who advocate for more affordable housing in wealthier suburbs, who might might live in such residential units? Is it people who cannot afford housing in the community, surrounding area, or region? Is it lower-income residents or lower-wage workers? Or, is it intended for public servants like firefighters and teachers? Or, is it needed for people with disabilities? Or is it for those who are older and downsizing and want to stay in the community? Or, is it for young professionals who want to start out in the community?

In the public discussions I have seen in wealthier suburbs (see an example here), the latter sets of people tend to attract more support regarding affordable housing. What these discussions can signal is who is more welcome or not in a community.

What could go wrong if a suburb buys up a vacant shopping mall to redevelop it?

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The suburb of Bloomingdale, Illinois got fed up with the lack of redevelopment a formerly thriving shopping mall so they are buying up the property:

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Frustrated by years of inaction by the owners of Stratford Square Mall, Bloomingdale has spent more than $5.6 million to buy former department store buildings and open space near the mostly deserted shopping center.

Now the village is trying to use its powers of eminent domain to take over the core of the mall itself. Bloomingdale has filed a condemnation lawsuit aimed at acquiring the property. Village President Franco Coladipietro called it an “act of last resort.”…

Bloomingdale has been buying mall real estate to facilitate a full-scale redevelopment of Stratford Square. The village paid $2.4 million for the vacant Carson’s department store, $2.15 million for the former Burlington building and $1.1 million for a vacant parcel east of the mall, between townhouses to the north and medical offices to the south…

“You have the potential of a brighter future. I understand that there’s risk. We look at it as a calculated risk,” he said. “And we’ve done the due diligence prior to engaging in the purchase of the properties.”…

To that end, the village opened a line of credit, or short-term loan, to pay for the purchase of the Carson’s, Burlington and undeveloped properties. The village also filed condemnation lawsuits targeting Kohl’s and the vacant Sears store to “keep everything on the same track,” Coladipietro said.

If all turns out well, the suburb will be able to say in ten or twenty years that the former shopping mall property is an asset for the community with new, vibrant uses.

But, this could also turn out poorly. The suburb has borrowed money to buy property. They are in court. The developer has not successfully pursued redevelopment; will the village be able to do better? What happens when the bills come due and/or the community cannot agree about what the mall property should become and/or potential developers are still not interested in the property?

The Village President says this is a “calculated risk.” Indeed. Suburbs do not like dealing with significant vacant retail space and this mall is not the only one in the area facing these issues. I hope they have a manageable floor for the mall property if all does not go as planned.

How suburbs can lose millions in revenue when office parks sit empty

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The changes to offices in one Minneapolis suburb illustrate the money at stake for suburban communities:

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One surprising victim might be the Twin Cities suburbs. Take the 64,000-person suburb of Eagan, Minnesota where, earlier this year, two announcements upended the commercial landscape. Two of the city’s largest employers terminated leases at massive office parks, both of which served as local corporate headquarters…

Because commercial property is taxed at a higher rate than residential, for a city like Eagan, with a $42 million budget, the loss of two large corporate headquarters is a hit to its bottom line. In 2022, the two office parks provided about $3 million in tax dollars to the city, county and school board. (The city of Eagan’s cut of the tax revenue sits at around a third of that total.) 

Whatever happens to these two sites, they’ll likely be assessed at much lower values moving forward, likely swaying the rest of the suburban commercial real estate market. This puts pressure on Eagan’s single-family residential property to make up the difference, shifting the low-tax balance that draws people to live second-ring suburbs in the first place.

For their part, Eagan city leaders say these kinds of economic changes are nothing new, and the city is well-positioned to survive…

She cited the changing loss of previous corporate headquarters in the city, including Lockheed Martin and Northwest Airlines, both of which disappeared due to mergers or outsourcing.

Multiple forces are at work:

  1. Corporate offices change over time, before and after COVID-19. This suburb has seen companies go before and they found different businesses to lease office space.
  2. It is less clear the direction of the current office space market and financial markets are nervous. With more work from home and more Internet business, how much physical office space is necessary in the coming years?
  3. Filled office parks can help suburbs generate significant revenues and reduce tax burdens for others. Vacant buildings do not this at the same rate.
  4. Buildings that are vacant long-term are negative symbols. Communities want to have thriving businesses, not empty buildings. The longer the vacancy stretches, the bigger the consequences.
  5. Communities can redevelop such properties but this requires money, proactive local officials, and partners.

If we could come back to Eagan in a decade or two, will these properties be redeveloped mixed-use properties, vacant sites, or office parks operating at a decent capacity?

How empty are American offices right now?

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A headline of an analysis of office space and vacancies in the United States suggests “American offices are half-empty.” Is this true? Here is how the analysis starts:

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From Dallas and Minneapolis to New York and Los Angeles, offices sit vacant or underused, showing the staying power of the work-from-home era. But cleardesks and quiet break rooms aren’t just a headache for bosses eager to gather teams in person.

Investors and regulators, on high alert for signs of trouble in the financial system following recent bank failures, are now homing in on the downturn in the $20 trillion US commercial real estate market.

After detailing the economic effects of this, particularly how banks might be affected, here is some evidence for the headline:

Office properties have been getting hammered the hardest. Hybrid work remains popular, affecting the rents many building owners can charge. Average occupancy of offices in the United States is still less than half March 2020 levels, according to data from security provider Kastle.

And then it is back to the possible fallout, including:

Trouble may build as the economy slows. Hill thinks US commercial property valuations could fall roughly 20% to 25% this year. For offices, declines could be even steeper, topping 30%.

The headline suggests half of offices are empty. The primary piece of evidence in the article says that average office occupancy “is still less than half March 2020 levels.” Does that mean average office occupancy was 100% in March 2020? Does this mean half of office buildings have no people in them? Even if the real figure about empty offices is 30% or 40%, this would be a big number with lots of ramifications.

An earlier article on the same site had a similar headline and evidence. From early March 2023, the headline: “Offices are more than 50% filled for the first time since the pandemic started.” The evidence:

Office occupancy across 10 major US cities crossed 50.4% of pre-pandemic levels for the first time since early 2020, according to security swipe tracker Kastle Systems. That marks the first time occupancy has crossed the 50% mark since March 2020, when many offices sent workers home because of Covid.

Again, the comparison is pre-COVID levels, not necessarily 50% of total possible occupancy. Again, this is a significant change that is a little different than claiming offices are more than 50% filled.

This all might be pedantic, but, if we should pay attention to offices, working from home, and the consequences of changes to commercial real estate, what are the actual figures regarding how much office space is occupied and/or leased?

Big box stores in Michigan can have their property taxes assessed on their value as an empty building

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Having a vacant big box store in a community can be a big problem. But, what if the store if in business and generating revenue and it is being assessed for property tax purposes at a value closer to its value as an empty property? Such is the case in Michigan:

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The dark store theory was born, in part, out of the 2008 recession.

Big box stores closed. The massive buildings that housed them had few other obvious uses and, in some cases, restrictions on selling the buildings to competitors put in place by the companies themselves reduced the pool of potential buyers. They often sold for far less than they’d cost to build.

Michigan law allows assessors to determine the value of a property in three ways: based on replacement cost minus depreciation, based on the income a property generates and based on the sales of similar properties.

Retailers began to argue that sales of empty stores were the best indicator of what their properties were worth. The Michigan Tax Tribunal generally agreed…

Of the 110 cases brought before the tribunal by Walmart and its subsidiaries since 2018, 93 have resulted in lower taxable values, often millions of dollars lower. All but one was a negotiated settlement. Eleven of the 110 cases are ongoing.

Two factors may be at play here. Retailers and businesses want tax breaks. They want to pay fewer taxes and boost their profits. If communities are willing to offer tax breaks like this (or others), why not ask for them and utilize them?

On the other side, communities want to bring in businesses and jobs. These retailers still provide some work for local residents and they are still generating some tax revenue. Even if they do not pay in taxes what they might, would a community be willing for a big box store to move to a nearby community and the money go elsewhere? Some development or even bad development might be preferable to no development or an empty building.

The news story quoted above details how this may change in Michigan due to a court case. If these large corporations do have to pay more in property taxes, will they change their operations at all? And how might communities make use of the extra revenue to improve local lives?

Former Dominick’s in Schaumburg vacant for ten years until a new grocery store opened this week

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The closing of Dominick’s stores in the Chicago region left a number of large vacant stores. One location in Schaumburg is now no longer vacant after ten years:

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When first elected four years ago, Dailly said negotiating an end to the vacancy was among his top priorities.

Tony’s bought the Town Center anchor site at 200 S. Roselle Road in 2015. But because of the Albertsons lease, work to prepare it for a new grocery store was stalled until 2021…

The village’s redevelopment agreement with Tony’s ensures the employment of at least 200 workers and a minimum $10 million investment in the building. The store is expected to generate more than $300,000 in annual sales taxes and food and beverage taxes for the village.

In addition to recommending approval of a Class 7b Cook County property tax break lasting 12 years, Schaumburg trustees agreed to provide $3 million in village funds for the expected $13 million renovation of the building.

The building’s vacancy potentially could have lasted until 2036 if Albertsons hadn’t stopped exercising its long-term lease options.

It is interesting to read about the tax breaks and agreements needed to help fill this vacancy. Is this standard fare in the difficult days of bricks and mortar business or is it that hard to fill a big, vacant site?

Ten years is a long time for an empty building to sit. Was Albertsons doing this to prevent competition with its own stores in the area or looking for a good payout from a new property owner or lessee?

In the long run, how many vacant properties can we expect in suburban shopping areas? If there are more coming, does this mean some retail space will be demolished or are there new uses for former shopping spaces?

How much easier is it to build a new Chipotle than repurpose a vacant storefront nearby?

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Near our suburban house is a shopping center consisting largely of strip malls and several anchor grocery stores. This development constructed in the late 1980s has fallen had hard times in recent years with numerous vacant storefronts.

Thus, it was surprising to see the construction that started last year at the site of a former national chain restaurant in this shopping center. This spot had been vacant for several years. The building came down and a new strip mall is going up. The new commercial space has an easy turn-in off a busy arterial road.

I have heard that it is easier to build a new big box store than to repurpose an old one. For example, numerous grocery stores in the Chicago region sat empty for years. Some big box businesses have moved out of older buildings and reopened in new structures not that far away.

The new Chipotle building will certainly be geared toward exactly what this business needs. Additionally, there will be at least one new storefront next to the restaurant. The old building had a different layout inside, one more fitting for a sit-down restaurant, and with on additional commercial space.

At the same time, how many strip malls, shopping malls, big box stores, and restaurants are torn down each year because the space they have is not exactly what a different business wants? What happens to all of these materials? How much time goes into tearing down? How substantially are these shopping areas changed by adding a few new buildings here and there? This Chipotle could have moved into a vacant property within the shopping center.

I could imagine more modular structures or incentives for reusing buildings or asking businesses to adapt to existing spaces. But, if it is cheaper or more efficient to tear down one building and redevelop another, then that is what businesses will do.

How many suburbs will be willing to replace suburban office parks with denser housing?

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If the golden age of the suburban office park has passed, what will some of the empty properties be used for? One option is denser housing:

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It will mean taking land long zoned for offices, and allowing townhomes to be built among them, or permitting apartments or industrial-scale warehouses for the first time. Amid a nationwide housing crisis, many obsolete office parks could be ideal sites for denser housing.

However, this is a very pertinent issue:

The problem for some suburban officials: “It’ll be, ‘Oh, what do you mean we can’t just zone for single-family homes and offices? That’s our thing. That’s why we exist,’” said Tracy Hadden Loh, a researcher at the Brookings Institution. “So now it’s like an existential crisis.”

This is an issue that comes up for numerous kinds of large suburban properties, whether they are shopping malls, golf courses, or grocery stores: how to convert a vacant property into a useful long-term use? The number one goal is probably to generate significant property tax and sales tax revenue. In other words, to keep it at its original as approved by the community years before.

But, if that is not possible – and communities might go years trying to fulfill this vision – then the discussions get interesting. Expensive single-family homes, fitting with the upscale suburban character of some suburbs, would fit in. Zoning protects single-family homes for a reason: suburbanites and suburban communities prefer these homes and their lifestyle.

However, single-family homes can bring more children to local schools and add to the loads of local services. They do not necessarily produce the revenues that offices and retail do. Denser housing is even less desirable because it adds even more residents, which can add to community services and traffic, and some suburbanites are concerned with apartment dwellers.

My guess is that mixed-use redevelopment will be a popular path a number of these communities will try to pursue. Replace that office park with a “metroburb.” But, it remains to be seen how many such developments are viable and how eager suburban leaders and residents are to pursue them.

Pop-up COVID-19 testing sites likely benefit from more vacant commercial properties

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Amid concerns in the Chicago area about a pop-up COVID-19 testing site operator, I thought: a business that can quickly emerge and offer testing services needs to be able to quickly find properties for their new locations. Brick and mortar businesses have faced issues for years and this has led to plenty of vacant commercial locations.

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Thus, when COVID-19 arrived and swept through the United States in multiple waves, there were numerous potential locations available for testing sites. Throughout the Chicago region and the United States, there are larger vacant properties – from office parks to grocery stores to shopping malls – as well as smaller locations in strip malls and other smaller structures. I got my first two vaccination shots at a former big box store in the far-flung Chicago suburbs. Commercial properties are often located along busy roads and they may have central locations that people can access relatively easily.

If commercial properties were not as available, testing could take place elsewhere including on government properties like fairgrounds or civic centers. For example, the State of Illinois Community-Based Testing Sites appear to be a range of property types.

Additionally, I wonder at the rates a new testing business or a government group would pay for rent and utilities at a vacant commercial property. Has more vacancies also helped make prices more affordable for testing facilities to arise?

And if COVID-19 passes plus there is more interest in commercial properties, testing sites might also fade away. Just like other businesses or organizations who might take up residence in a strip mall or commercial property for a while, COVID-19 testing sites would arise and then disappear again in the commercial landscape.