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2014 Office Market Conditions - South Cook County

Taken as a whole, the Chicago metropolitan area office market appears to be showing some slight improvements. Office average rental rates have stabilized and in some areas slightly improved. There are more office space deliveries (albeit vastly below 2009 levels) and a slight positive absorption of office space in 2012 and 2013.

When working on Chicago office tax appraisals, however, we often see a different picture. Most of the improvement in Chicago office market conditions is occurring in the downtown area. The downtown Chicago office market is huge and their sheer numbers dwarf and skew Chicago metropolitan office area averages. In many areas of the south suburban office market we continue to see decline in rents, declining occupancy levels, negative absorption trends and virtually no new office deliveries in years.

The charts below show variables relevant to a Chicago area office appraisal comparing Chicago office market conditions as a whole (left) with the 29 high tax south suburban communities having composite property tax rates that are 14% and above (right).







CoStar Inc., data


High tax communities: Bellwood, Burnham, Calumet City, Calumet Park, Chicago Heights, Cicero, Country Club Hills, Dixmoor, Dolton, East Hazelcrest, Flossmoor, Ford Heights, Glenwood, Harvey, Hazelcrest, Homewood, Lansing, Markham, Matteson, Maywood, Olympia Fields, Park Forest, Phoenix, Richton Park, Riverdale, Sauk Village, South Holland, Stone Park, and Thornton.

As Chicago office appraisers we are seeing the office market continue to deteriorate in the high tax areas. The overall office vacancy in the Chicago metro market has declined to 14.4% in 2013 from 15.1% in 2009. According to Costar the south suburban area under review went from 15.1% in 2009 to 22.7% in 2013. Average rents in the south suburbs declined from $16.35 in 2009 to $14.15 today. Office absorption trends have been negative for four out of the past five years in the south high tax suburbs.






CoStar Inc., data


Office deliveries have been virtually non-existent in these high tax south suburban communities as far back as 2007. Even with no new construction in years the office vacancy levels are increasing and the rents continue to go down. The south suburban rents average only $14.15 per square foot versus $22.47 in the overall metro area.

During our field inspections, our office property tax appraisers are frequently hearing about the extraordinarily high real estate taxes from office property owners. These high property taxes appear to negate the lower property prices and create very high risk levels for potential office investors. A south suburban office building with high vacancies can have a very negative cash flow with real estate taxes at the levels they experience. This Chicago south suburban area suffers from a very high level of foreclosures, short sales and bank owned office buildings.

It is critical that Chicago office tax appraisers recognize the very different market conditions in differing areas of the Chicago office market.