More companies are staying in suburbs as they look to expand, attract talent

KemperSports CEO Steven Skinner has a pithy reply to those whom believe the suburban Chicago office market is on life support.

"The death of the suburbs is a little premature," Skinner said.

Perhaps less poetic than Twain, but Skinner makes his point: Not all companies are fleeing the suburbs to occupy downtown Chicago office space.

KemperSports, which owns and manages golf courses, athletic clubs and resorts, was founded in 1979 in the suburbs, and has no plans to leave, Skinner said.

Of the company's 6,000 employees nationwide, 70 work at its corporate headquarters in Northbrook. Ninety percent of those headquarters employees live in the suburbs and enjoy the easy commuting options offered by the nearby Edens Expressway and a Metra rail line, and the quality of life offered by the suburbs, Skinner said.

"We're a family company. We really believe in offering our employees a good work-life balance. If they need to run out to see their first grader play a baseball game, we want to support that," Skinner said.

Of late, all the attention has been on companies that have relocated all or part of their offices to downtown Chicago, including McDonald's, Walgreens, Motorola Solutions and Kraft Heinz.

Their main contention is that they need to be located in Chicago to attract tech-savvy millennial workers who want to live in the city.

But many suburban-based companies say they have no trouble attracting qualified workers, and boast of employing a nice mix of experienced veterans and innovative newcomers.

These companies state that the benefits of being in the suburbs include less traffic congestion, proximity to O'Hare International Airport, and lower office leasing costs. Their employees, meanwhile, enjoy more housing options, lower rents or mortgage payments, better schools and more recreation options.

"A lot of the stories we've seen involve companies going to the city, because it's more sexy. But a lot of companies are staying in the suburbs. The suburbs are kind of flying under the radar," said Jon Springer, executive vice president of CBRE Inc., a commercial real estate services and investment firm.

Longer term, suburban companies are betting that millennials will move back to the suburbs when they start having children and seek more living space and better schools.

"Our belief is that over time, as the workforce continues to mature, it will migrate to the suburbs," said Steve Beauchamp, CEO of Paylocity, a Schaumburg-based payroll and human resources software firm.

When Paylocity needed more space for the 500 employees in its corporate headquarters in Arlington Heights, it decided to move to Schaumburg in 2017. Since then, it has doubled the number of employees in its headquarters to 1,000, despite two-thirds of those workers being tech-savvy millennials.

"Our view is that you don't have to be in downtown Chicago to grow your millennial workforce," Beauchamp said.

Recent office market activity reports suggest that the corporate exodus to the city may be slowing.

The suburban office vacancy rate fell for the second year in a row in 2019, dropping slightly to 22.1% compared with 22.8% in 2018, according to a market analysis from Jones Lang LaSalle, a Chicago-based real estate and investment management firm. The latest figure is a marked improvement from the peak suburban office vacancy rate 23.3% in 2017, but still short of the 18.6% rate in 2016, according to Jones Lang LaSalle.

"It was a decade of highs and lows for the suburbs, but 2019 recorded one of the strongest performances of the decade," said Edgar Leon, a research analyst for Jones Lang LaSalle.

In 2019, some of the larger suburban office deals included US Foods renewal of its lease of 275,000 square feet of space in Rosemont, and Edward-Elmhurst Health leasing 187,000 square feet in Warrenville. Other notable deals included Co-Optim leasing 110,000 square feet in Itasca, ACCO Brands renewing a lease for 189,000 square feet in Long Grove and Baxter Credit Union renewing 100,000 square feet in Vernon Hills.

Leon sees several short-term trends factoring into the falling suburban office vacancy rate. For one, the gap between city a suburban office rents continues to widen, making companies question whether it's worth the added cost to be located in Chicago, Leon said.

In 2010, average class A office spaces leased for roughly $22 a square foot in the suburbs, compared with about $32 in Chicago, a 43% spread, according to Jones Lang LaSalle. In 2019, that gap grew to 75%, with suburban office space leasing for about $23 per square foot compared with $41 in the city, Jones Lang LaSalle reported.

There is concern that city office leases will continue to rise due to expected increases in property taxes. Cook County Assessor Fritz Kaegi is expected to introduce changes to the way residential properties are assessed, shifting the tax obligations to commercial properties. Landlords are then expected to raise rents to pay the higher taxes.

A third factor is suburban landlords are investing in upgrades to their buildings to give them a more urbanized feel, a trend Leon calls, "renovate, rebrand and retain." These upgrades include more open floor space, expanded gyms, yoga and spin classes, food courts, Wi-Fi lounges, game rooms, putting greens and golf simulators.

"You're trying to create the same urbanized feel and workplace culture of a downtown office," Leon said.

Assurance, an insurance brokerage, was looking for such amenities last year when it moved into larger headquarters in Schaumburg.

Assurance has long been ranked one of the top companies to work for in Illinois, offering employees such perks as flexible work and vacation schedules, work-from-home options, and office perks such as employee outings, and regular awards and prizes.

But when it decided to move its 350 headquarters workers from one part of Schaumburg to another, into a 75,000-square-foot office space, it looked to add some of those "urbanized" features such as more open work spaces, motorized desks that can be adjusted for standing, an expanded fitness center, two cafes, and a medication room.

"We simply decided to adopt a more contemporary approach," said Steven Handmaker, chief marketing officer. "We just didn't want a cool office, but an office that makes it a great place to work."

Another important factor for Assurance was to select a new headquarters where there is room to grow, Handmaker said. He doesn't think Assurance's suburban location detracts from its ability to attracted talented employees, now and into the future.

"We're not short on the ability to attract talent," Handmaker said. "A lot of younger talent might like the city today while they're enjoying their 20s. But we know it's not uncommon to ultimately migrate to the suburbs as lifestyles change. As a result, we have the capacity to add a considerable number of employees in the future."