THE sale of the Thompson Center to Google for $105 million has the potential to restructure the Loop by attracting more residents — and, with them, residential developments, real estate experts say.
Developers, investors and real estate executives are watching the market closely after the tech giant announced in July that it would redevelop the Thompson Center for office use, potentially bringing thousands of workers to the center -town.
Workers will need a place to live — and many will want to be nearby, said Ben Creamer, principal and managing broker at Downtown Realty Company.
– Advertising –
The company works with over 300 properties in and around the central business district in the Loop and has seen a large number of people move downtown to be closer to work over the years as convenience has become a priority n No. 1, Creamer said.
“It’s so important for people to have a convenient commute, and being able to walk to work is such an important part of that,” Creamer said.
Now Creamer and other industry experts are watching the Loop for what they call “the Google Effect”: a spike in real estate investment around the Thompson Center.
“As we continue to see more and more people move closer to the office…I think that’s going to have a huge effect,” Creamer said.
Office occupancy rates continue to hover around 46% from 2019 levels, Creamer and other industry experts believe vacant office buildings will be converted to condos and apartments.
The first real test of this hypothesis is the impending sale of 33 rue N. LaSalle, a 38-story art deco skyscraper that serves as an office building. It’s the first large Loop building to hit the market since Google’s announcement in July, according to a CoStar report.
The skyscraper is marketed as a desirable office location, citing Google’s addition to the Thompson Center as a high selling point in its summary. Currently at 71% occupancy, the building has the potential to add more Loop-based workers – or it could lend itself to residential conversion.
John Sheridan, executive vice president of James McHugh Construction Co., said other notable properties in the area are considering adaptive reuse, meaning they could convert offices into residential or hotel units.
These include 135 S. LaSalle Street, 65 E. Wacker Place and 19 S. LaSalle Street, Sheridan said. He does not know 33 rue N. LaSalle intimately, but he thinks it could also be a candidate for conversion.
“We’re almost always looking to convert a few buildings downtown to hotel or residential use from office use,” Sheridan said.
The conversion of historic buildings can also come with tax incentives to ease the cost of construction, making them attractive to developers. On the other hand, such projects can take years to get off the ground, with their success depending on good planning and working at the “right time,” Sheridan said.
Adding to the Google Effect: Pandemic-related construction delays have created a lucrative market for apartments and condos, with high demand and low supply. This year, developers will complete 1,500 units downtown, but the normal average for previous years is around 4,000, Creamer said.
Creamer expects the market to start leveling out in 2024, two years before Google completes construction and moves into the Thompson Center. Because of this, tenants can expect to face higher prices — but building conversions could add to the market and balance prices in the future, Creamer said.
Residential conversions also tend to have larger floor plans, with some offering more affordable options than “floor building,” Creamer said.
Sheridan believes the Loop will continue to see conversions and adaptive reuse projects ahead of Google’s move-in date – but not all of these projects are the result of the tech giant, as the entire downtown area has seen reuse adaptive as the city landscape evolves.
Tribune Tower, LondonHouse Hotel, the Virgin Hotel and Dearborn Tower in the South Loop have been adaptive reuse projects in recent years.
“You can go up and down the city – there are a large number of buildings [that are conversions]. So I think that will continue to be a trend that we’ll see more and more of over time,” Sheridan said.
Listen to “It’s All Good: A Block Club Chicago Podcast”: