Leasing Office Space in Chicago: What Tenants Should Know

Anyone searching for Chicago office space for lease quickly sees that the options range from Loop towers to converted lofts to suburban campuses. Before you tour any of them, work out where your people live, how they commute, and where your clients are. This is often the decision that narrows the search the most, and it is more reliable than a list of preferred addresses.

Downtown, the Loop, River North and the West Loop each offer a different mix of transit, building type and character. Our guide to Chicago office neighborhoods compares them. If you are weighing the city against a suburban location, such as the O'Hare corridor, Oak Brook, Schaumburg or the North Shore, our guide on choosing downtown or the suburbs sets out a method.

Class labels describe a building's age, location, finishes and management in shorthand, but they are not an official rating. Two buildings with the same label can feel very different, and a well-run older building may suit you better than a newer one that lacks what you need. Check lobby and elevator condition, building hours and services, ownership and management. Find out how the landlord handles repairs by asking other tenants if you can.

Then evaluate the suite. Chicago's supply includes spec suites, second-generation space and sublease space alongside raw floors needing a full build-out. Each option has different consequences for your schedule, cash and flexibility, so a space that looks more expensive at first may be the cheaper one once you add the build-out and furniture.

• ✓Is the building's ownership stable, and is it well capitalized enough to fund the allowance it is offering?
• ✓How long has the suite been empty, and what condition will it be delivered in?
• ✓Which building hours apply, and what does after-hours HVAC cost?
• ✓How is parking handled, and what will your staff and clients pay?
• ✓What transit lines serve the building, and how far is the walk in winter?
• ✓Who else is in the building, and does any exclusive or restriction affect your use?
• ✓Is there room to grow, either in the building or through an expansion right?
• ✓Does the landlord have a lender whose consent could affect your deal or your protection?

Chicago proposals may be quoted on a net basis, with estimated operating expenses and real estate taxes shown separately, or on a gross or modified gross basis, with a base year or an expense stop. A low net rent and a high gross rent can describe the same total. If the numbers are not on a common basis, you are not comparing anything.

Ask what the rent is measured on, too. Rent is charged on rentable square feet, which includes a share of common areas, so the same usable space can yield different rentable figures in different buildings. Also check the scheduled increases, how much free rent there is and where it falls, and whether you get an allowance or a turnkey build-out. We put every proposal into the same model and look at both net effective rent and the actual cash cost by year.

Ask each landlord for its most recent actual operating expenses and taxes alongside its estimate for next year. An unusually low estimate makes a net quote look better than it is.

Property taxes deserve closer attention in Chicago than many tenants expect, because they can be a meaningful part of what you pay. The Cook County Assessor's Office says the county follows a triennial reassessment cycle, so a building's value is revisited at least every three years based on its township. For most commercial property owners, the assessed value is 25% of fair market value, according to the Assessor, though this figure is one input and the tax bill also depends on levies and rates that other bodies set.

The practical point is that taxes can move from year to year for reasons unrelated to your use of the building, and they often pass through to you. Ask about the building's assessment history and any pending appeals, and read how the lease handles a reassessment, a sale or a tax refund. Our dedicated guide on Cook County property taxes and your lease goes through these questions.

1. Set your timeline by working back from your lease expiration, with extra time if you might need a build-out.
2. Define your needs: headcount, attendance, room types, budget and growth.
3. Map commutes and clients, and narrow to one or two areas.
4. Survey direct, sublease and spec options, and tour a short list.
5. Send a written request for proposals to more than one building, including your current landlord if staying is an option.
6. Commission test fits and rough pricing for the finalists.
7. Compare proposals on a common basis, and negotiate a letter of intent.
8. Have your attorney negotiate the lease, while your advisor tracks the business terms.
9. Manage the build-out, move and surrender of your old space.

Having a live alternative is usually what moves a landlord, including a landlord you plan to stay with. One client that wanted to stay in its building said TAG:

Tenant Advisory Group is based in Chicago and represents tenants and buyers, not landlords or sellers of investment property. Since our founding in 2008, we have handled more than 500 transactions totaling over $1.5 billion. In a Chicago search, we bring local knowledge of buildings and owners, run a competitive process, and keep the deal on a clear schedule from the first survey through move-in. Landlords' listing brokers work for landlords, so it makes sense to have someone working for you before the first tour.