Copyright The Financial Times Limited 2007
Chicago tops US property hotspots
By Daniel Pimlott in New York
Published: January 29 2007
Chicago shot to the top of the list of the hottest US office property markets last year as investors flocked from the east and west coasts towards cheaper prices in the Windy City.
The amount of office property changing hands in downtown Chicago soared to more than 26m square foot last year, nearly tripling from the year before, and shooting past midtown Manhattan’s property market, according to data from Cushman and Wakefield, the property services company.
Across the US office property sales were at their highest ever, with total sales volumes jumping 40.5 per cent to $134.9bn.
In Chicago the total value of property sold in the central business district rose from $3.3bn to $5.25bn, according to Jones Lang Lasalle.
Midtown was the second most active office property market in the US last year, with nearly 21m sq ft sold last year, up nearly 9m from 2005.
Sales in Chicago were driven by a number of large office buildings coming onto the market. In 2006, 9 buildings costing more than $200m were sold, compared to 5 the year before.
The top price tag was taken by the Citadel Center at 131 South Dearborn Street, housing the Citadel hedge fund, which was bought by Richard Gans, a New York investor, for $560m from Prime Group Realty Trust. The Prudential Plaza building was the second most expensive property sold at $465m, while a new building at 1 South Dearborn came in third at $350m.
Chicago, as well as cities like Dallas and Atlanta, benefited as competition for sales in gateway cities such as LA, San Francisco and New York drove office property prices to their highest ever level this year, pushing investors to seek value in second tier cities, said Janice Stanton, senior managing director at Cushman Wakefield.
Meanwhile, low interest rates have encouraged buyers to look at larger properties and assume more debt.
Prices per square foot in downtown Chicago came in at $300-$400 last year, compared with $1,200 in midtown Manhattan.
Chicago’s success was a feature of booming US commercial property market, Ms Stanton said. ”Real estate easily outperformed all other asset classes last year,” she said. “Office is particularly hot.”
The success of Chicago as a centre for derivatives exchanges has in recent years spawned a large support sector in the city, which has also helped to spur the property market. “That has been one of the growth engines in the economy,” said Bruce Miller, a managing director at Jone Lang Lasalle. Law firms, in particular, have been one of the main driving factors in Chicago’s expanding office real estate market.
If the sale of Equity Office Properties, the Chicago-based company which owns more than 10m sq ft in the downtown area, goes ahead, then this year could even beat 2006. But excluding that, analysts say so much property changed hands last year - more than a sixth of the entire Chicago downtown - that sales must drop in 2007.
Chicago is second only to New York in terms of the number of the biggest US companies which locate their headquarters there. United Airlines is moving its headquarters to downtown Chicago from the suburbs, Mittal announced it would locate its headquarters in downtown Chicago at the end of 2005 and Boeing moved to Chicago from Seattle in 2000.
However, in recent years the city has lost other headquarters, such as Ameritech, BankOne, Quaker Oats, and Amoco. Analysts say that currently the numbers of firms moving to locate their headquarters in the city against those leaving is fairly evenly balanced.
Other markets that saw big changes in office property sales include Dallas, where more than twice as much property sold in 2006, at over 7.5m sq ft, as it did in 2005. Atlanta saw sales shoot up from just over 600,000 sq ft to more than 5m.