Chicago’s River North, a district once notorious for its prostitutes and dilapidated warehouses, has become one of the hottest office markets in the United States.
The neighborhood has transformed from a wasteland in the 1970s to a trendy spot for living, dining and entertainment that’s also attracting technology tenants. Yelp, the San Francisco-based business-review website, is one of the latest to lease space in the area, located across the Chicago River from the central business district known as the Loop.
Chicago is among U.S. cities benefiting from the technology boom as job growth in the industry boosts demand for offices. Startups and expanding firms alike are cramming into River North, drawn by its historic buildings and easy access to mass transit, pushing vacancies to the lowest in downtown Chicago.
River North office rents jumped 26 percent in the past two years, the most for a high-tech submarket behind only Redwood City on the San Francisco Peninsula and Manhattan’s midtown south, according to brokerage CBRE Group Inc.
“The River North activity is just off the charts,” said Tiffany Winne, a senior managing director at commercial brokerage Savills Studley in Chicago, who has represented technology tenants.
The vacancy rate for the neighborhood’s 11 million square feet (1 million square meters) of offices was 10.8 percent at the end of June, compared with 14 percent for the 126 million square feet in all of downtown, data from CBRE show. Among companies based in the district is daily-deals website Groupon, which has 323,000 square feet at its headquarters at 600 W. Chicago Ave., according to CoStar Group.
For more than half of the 20th century, River North was an industrial and storage hub. In the 1960s, the area started to decline as it lost its importance as a warehousing center.
Developer Albert Friedman started buying buildings in the ’70s, renting first to artists and photographers, when the neighborhood was “pretty dangerous”—a “skid row” with drug dealing and prostitution, he said in an interview. He gave the budding community its name, in hopes potential tenants would “forget the somewhat seedy nature of the area,” according to the website of the River North Business Association.
Friedman Properties now owns and manages more than 4 million square feet of commercial real estate in Chicago, much of it in River North, where the company redeveloped the Reid Murdoch Center, a former warehouse and food-processing plant on the waterfront built in 1914. The red-brick landmark, with its four-sided clock tower visible from part of downtown, is home to the headquarters of Encyclopaedia Britannica.
Today, the neighborhood’s mix of refurbished industrial buildings and new construction includes apartments and condominiums, cafes, nightclubs and hotels such as the Hyatt Place Chicago/River North.
“There used to be a time when you didn’t want to walk through River North after dark,” said Sharon Romack, chief executive officer of the business association. “Now River North is the place to be after dark.”
A network of CTA train lines, as well as bus routes running through the community, has helped draw employers. GoHealth, a health-insurance technology company, has been based in River North since 2006 and agreed this year to expand, leasing 42,000 square feet of space on West Superior Street near some of its existing offices.
“Our employees have reiterated time and time again they love the area and want to stay,” said Brandon Cruz, GoHealth’s president. “We think it’s the best place in the city, and that’s why we’re there.”
The company also rents offices in the Mart, a 3.6 million- square-foot Art Deco property that was built in 1930 for department store chain Marshall Field & Co. for its wholesale operations and known for decades as the Merchandise Mart. The landlord, New York-based Vornado Realty Trust, changed the name in a bid to attract more technology tenants.
Yelp agreed to take more than 50,000 square feet in the Mart for its first Chicago offices. The building’s proximity to public transit helped sway Yelp’s decision, according to a statement from the company and Mayor Rahm Emanuel announcing the lease on Aug. 14. Yelp will move into the space in January and plans to hire as many as 300 workers in the city in the next 18 months.
Emanuel has worked to lure young technology firms to Chicago, touting its lower cost of living compared with San Francisco, Seattle and Boston. Groupon, restaurant-delivery website GrubHub and Braintree, the electronic-payment system bought by EBay last year, are among companies that brought attention to Chicago as a hub for the growing industry.
“Last year there was a new startup every day in Chicago, just in the digital space,” Emanuel said in an Aug. 27 interview on Bloomberg Television. “We have a workforce with a Midwest work ethic that is, bar-none, the best in the United States, and our workforce is tremendously loyal.”
River North shares characteristics with other high-tech submarkets, such as South of Market in San Francisco, South Lake Union in Seattle and New York’s midtown south. Their industrial- era properties and smaller buildings with brick-and-timber construction have been favored by technology tenants, according to Colin Yasukochi, director of research and analysis for CBRE in San Francisco. Such districts were considered “fringe” and had lower rents prior to becoming popular places for living, dining and entertainment, he said.
River North asking office rents averaged $33.68 a square foot in the second quarter, up from $22.47 four years ago, according to CBRE. Class A, or top-quality, offices in River North commanded the highest asking rents in all of downtown, at $44.03 a square foot on average.
River North’s rising rents and the lack of suitable supply have forced some potential tenants to look elsewhere. SIM Partners, a firm that helps companies’ brands get more exposure online, began seeking space about 18 months ago, said Jay Hawkinson, senior vice president of emerging products.
“When we started, River North was the place to be for tech,” he said. “To get what we wanted, we knew we weren’t going to get it at a price that was going to work out for us.”
SIM Partners ended up taking 14,500 square feet at 30 N. LaSalle St. across the river in the Loop, moving its headquarters from Evanston. The rent, in the low $30s a square foot, is a few dollars less than what the same space would have cost in River North, Hawkinson said.
Other parts of the central business district and west of the river from downtown also have lured companies shut out of River North, said Corey Siegrist, a tenant broker at Jones Lang LaSalle Inc.
About 22 percent of Chicago’s new office jobs in the two years through 2013 were in the technology industry, CBRE data show. Employers added 11,795 positions, ranking sixth behind California’s Silicon Valley, Seattle, San Francisco, Manhattan and Boston. Hiring will increase and continue to prop up the real estate market, said Yasukochi of CBRE.
Health-information provider ContextMedia Inc., with 100 employees, has doubled its staff in each of the past five years and expects to have 200 workers in 2015, said Rishi Shah, the CEO. The company this year moved its headquarters from the Loop to AMA Plaza, a 52-story tower in River North designed by German-born architect Ludwig Mies van der Rohe, in part because it had room to grow into, Shah said.
The accessible location, assortment of bars and coffee shops for socializing and concentration of like-minded technology companies help create a community feel that makes River North hard to beat, Shah said.
“It makes sense to me that River North is taking off the way it has,” Shah said. “It has it all.”
