Citigroup is cutting its office footprint by two thirds in a move to Schaumburg, compounding suburban Chicago’s soaring vacancies and prolonging a trend of downsizing amid historically low demand for office space.
The New York-based banking company has signed a lease for 49,400 square feet across two floors in the Schaumburg Corporate Center at 1515 East Woodfield Road, Crain’s reported. Citigroup will relocate to the northwest suburb when its 146,000-square-foot lease at 50 NW Point Boulevard in Elk Grove Village expires at the end of the year.
The downsize is another blow to the suburbs, which had a vacancy rate rise to a record high of 29 percent last quarter. The remote-work era has pummeled Chicagoland’s office sector, and many landlords are in financial turmoil as other challenges, like hiked interest rates, become part of the equation.
“The nature of how we work has changed,” a Citigroup spokesperson told the outlet. “The majority of our roles across the U.S. are hybrid, offering our people the flexibility to work up to two days a week remotely. As we implemented this model, we knew we needed to evaluate the space we utilize across our real estate portfolio.”
The Citigroup lease may be a letdown for the region as a whole, but it’s a win for Glenstar, which paid $74 million for Schaumburg Corporate Center in 2017. The Chicago-based developer spent $30 million on renovations just before the pandemic, and the investment is starting to pay off. In the first half of 2023, Glenstar received 11 leasing commitments totaling about 154,000 square feet. The complex now has an occupancy rate of just under 70 percent.
“These leases are indicative of the broader trend of companies moving to fully amenitized trophy buildings in desirable suburbs,” Glenstar Principal Michael Klein told the outlet. “Across our office portfolio, we are focused on creating the type of new, modern spaces that are in demand by companies as they return to the office and want as many employees as possible to embrace the move.”
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While things appear to be rolling in the right direction for Glenstar, possible loan issues could hinder future leasing activity at the site. The firm took out a nearly $78 million loan from Square Mile Capital — since acquired by Affinius Capital — upon purchasing the property. Square Mile also provided a $19.5 million mezzanine loan to help fund renovations.
It’s unclear when the maturity date is or how much debt remains, but a number of office properties across the city are on the brink of foreclosure after years of poor performance following the pandemic. Tenants are often steering clear of distressed properties, not knowing if they’ll even exist in the forthcoming years, let alone be able to fund an overhaul to tenant space as part of a lease extension package.
— Quinn Donoghue