Stemming the job drain in Lake County
With moves by Mondelez, Walgreens and Takeda, who’s going to take their place in Lake County?
Even after years of high-profile office moves from the suburbs to downtown Chicago, Lake County’s current predicament stands out.
The county is bracing for the loss of about 2,700 office jobs by early next year, from prominent companies Walgreens Boots Alliance, Takeda Pharmaceutical Co. and Mondelez International.
Meanwhile, it’s unclear what drugmaker AbbVie’s $63 billion deal to buy Ireland’s Allergan will mean for area employment. AbbVie has 9,300 workers in Lake County, making it the county’s largest employer.
History indicates corporate campuses in Deerfield and nearby suburbs — and the homes and businesses those high-paying office jobs support — can weather the storm. But the challenge has only intensified as more companies move jobs to downtown Chicago, in pursuit of younger workers who want to live in the city.
“I do not think the sky is falling, by any stretch,” said Kevin Considine, president and CEO of economic development group Lake County Partners.
By now, Chicago’s suburbs are familiar with the challenge of retaining their largest corporations and replacing those that have left. Suburban companies in recent years have shifted thousands of jobs downtown in pursuit of young, urban workers.
McDonald’s, Kraft Heinz, Motorola Mobility, Hillshire Brands, Gogo, Wilson Sporting Goods, Motorola Solutions and Beam Suntory are examples of companies that have moved their headquarters downtown in the past few years. Others, such as Walgreens, have established large offices in the city while retaining suburban headquarters.
On June 25, Japanese drugmaker Takeda said the already announced shutdown of its U.S. headquarters in Deerfield would come by year’s end, and work at the 1,000-employee campus will shift to the Boston area after Takeda’s acquisition of Irish drugmaker Shire. That same day, North Chicago-based AbbVie announced it would buy Allergan.
Those changes come as Deerfield prepares for Walgreens’ relocation of 1,300 jobs to Chicago’s old main post office redevelopment in the next few months, as well as snack-maker Mondelez’s shift of 400 jobs to Chicago’s Fulton Market district next spring.
“It’s a concern,” said Brad Joseph, principal at Chicago-based real estate investment firm Core Acquisitions, which owns a building in the Parkway North office complex in Deerfield. “You can’t ignore the expansion that’s going on in Fulton Market and the West Loop that’s attracted a lot of suburban companies.
“But we think there’s still a critical mass in the north suburbs that is attractive. We still see the northern
suburbs being in play for a long time, whether it’s millennials moving back to the suburbs or the great existing companies there today. It’s not a one-company town.”
Early this year, Core Acquisitions demonstrated confidence in the office market by buying a 100,000-square-foot building that will become vacant when insurer Markel Corp. moves out in January. Interest from potential tenants has been strong, Joseph said.
There are precedents to support such confidence.
When spirits-maker Beam Suntory moved its headquarters to Chicago’s Merchandise Mart in 2017, Caterpillar quickly signed a lease to fill the space in Deerfield, moving its headquarters from Peoria.
In another high-profile move in the northern suburbs — although just south of Lake County — Kraft’s massive former Northfield headquarters didn’t sit empty for long after the newly formed Kraft Heinz relocated to Chicago’s Aon Center in 2016.
In that instance, an existing suburban behemoth, Medline Industries, bought the 679,000-square-foot building and made it the health care supplies company’s new headquarters as part of a company expansion.
Takeda can hope for a similar result, as the company seeks a buyer for its 770,000-square-foot campus along the Tri-State Tollway and Lake Cook Road.
The company has yet to comment on the process to sell its campus, other than to say it wants to complete a deal before April, the end of its fiscal year.
The three-building property has some of the highest-quality office space in the northern suburbs, and its location adds to the appeal, real estate experts say.
The 70-acre campus also includes land, and zoning approval in place, to build a fourth building — for more offices or something else, such as a hotel or apartments.
“Is it bad news that a company like that is leaving and vacating three buildings?” said Dan McCarthy, an office tenant broker at Jones Lang LaSalle. “It’s not great, but it creates an opportunity for a user like we saw with the Kraft building or for a speculative investor who likes the location and the asset and wants to take the risk of finding a user for it. It’s a great opportunity for somebody.”
The village has received some inquiries from prospective buyers and is passing them on to Takeda, said Deerfield Village Manager Kent Street.
Some have been interested in the entire site, and others in taking just a portion of it, he said. Deerfield would prefer a single user so the town would only be working with one owner.
“It’s all very preliminary, but they’re asking good questions, so some work is being done to investigate the site,” Street said.
Empty office space
Overall suburban office vacancy was 22.8% during the second quarter, compared with 11.3% downtown, according to JLL. Lake County vacancy was 24.6%, second-highest among six suburban submarkets.
During the quarter, downtown landlords were seeking rents 76% higher overall than owners of suburban buildings. For the highest-quality office space, rent was 80% higher downtown than in the suburbs last year, compared with a difference of 46% in 2012, according to JLL.
Pockets of strength remain in suburbs, such as Oak Brook and Schaumburg, surrounded by amenities such as retail and entertainment.
It’s yet to be seen what will become of McDonald’s former corporate campus in Oak Brook, which in June was sold to John Paul DeJoria for $40 million. The Paul Mitchell hair products founder has not disclosed plans for the 80-acre property.
There are some signs that young workers will return to the suburbs to raise families, as previous generations have done, McCarthy said.
“When you combine that with what has been a historically high spread of rent differential, companies are going to have to start taking a look at the suburbs again,” McCarthy said.
Deerfield office space also has remained in high demand, in part because of the presence of major corporations that attract companies in related industries. And Lake County as a whole enjoys strong employment.
Lake County and Kenosha County, in Wisconsin, collectively added 9,700 jobs in the year leading up to May 2019, a 2.3% increase that outpaced overall job growth in the Chicago metro area, according to the Bureau of Labor Statistics.
Lake County’s unemployment rate was 3.4% in May, the lowest it’s been during the past decade.
A 2013 report outlining the county’s economic development strategy said losing any of the larger employers in the biopharma industry — such as Takeda — would be “devastating” to the county.
Considine, who wasn’t there when the report was written, downplayed the potential impact.
“I’ll believe they had their reasons for that opinion, but I think with where the world is now, a focus on health and life sciences has tremendous upside,” Considine said.
Takeda was a big employer with 1,000 headquarters jobs, but AbbVie is the county’s largest private employer and Abbott Laboratories, Baxter, Discover and Walgreens are all larger than Takeda, he said.
Considine also doesn’t see Takeda’s departure as a sign they were unhappy with Lake County’s business climate. Both Shire and Takeda had operations in Boston, and a business unit focused on plasma-derived therapies, which currently employs 600 people, will remain in Bannockburn.
“I don’t like it, but I can understand it,” Considine said.
He’s more optimistic AbbVie will stay following its recent acquisition of Allergan. “They have been really committed to Lake County and Chicagoland … and I’m not seeing or hearing anything that would make me think otherwise.”
AbbVie said it would keep its headquarters in North Chicago, but also said it expected the acquisition to yield $2 billion in annual cost savings by its third year, in part through “elimination of redundant infrastructure.”
That will very likely result in some layoffs, but the two companies don’t have much overlap in their businesses, said Damien Conover, health care sector director at Morningstar. That suggests cuts could hit administrative employees, in which case Allergan would likely be hit harder than its buyer, AbbVie, he said.
The housing market
Time will tell whether the young workers that companies are seeking in cities will still prefer Chicago to the suburbs as they get older.
Home prices have come down on the North Shore and real estate agents said they’re starting to see more millennials, but generally not until they begin forming families and weighing where to send children to school.
In the northern suburbs, though, affordable housing options can be hard to come by, especially for single people, said Brad Andersen, managing broker and owner of Griffith, Grant & Lackie Realtors.
That can make the area more challenging for young residents, which also means “there’s not much of a social life for a young man or woman in the northern suburbs,” he said.
In May, the inventory of detached single-family homes for sale in the North Shore-Barrington region was up 6.1% compared with the same month last year, while the median sales price was down 4.5%, according to Midwest Real Estate Data research provided to the North Shore-Barrington Association of Realtors.
“There’s just too much inventory, and buyers are more conscious of what they want,” said Joel Raynes, a Coldwell Banker agent in Winnetka.
Both Andersen and Raynes said they saw county and state tax policies affect the suburban housing market more than corporate moves.
Workers don’t necessarily follow when their office relocates, whether that means switching jobs or accepting a longer commute, and some who decide to sell their homes were likely already contemplating a move, Raynes said.
Hotels and restaurants closest to Takeda said they’ll miss the company’s business, but hadn’t depended on it.
“It’s definitely a concern, but it’s been a long time coming,” said Morgan Stevens, manager of the J. Alexander’s Redlands Grill across the street from Takeda’s offices.
The restaurant often saw workers grabbing lunch, entertaining clients or occasionally hosting afternoon bar parties, Stevens said. But Stevens said Takeda had already begun moving workers and the restaurant hadn’t taken a hit so far.
“We’ll have to wait and see,” she said.
The Holiday Inn Express & Suites less than a mile from Takeda’s headquarters also benefited from the company’s proximity, said front desk manager Lucretia Johnson. She estimated Takeda’s visitors spent at least 50 nights per year at the hotel.
“It’s a customer we’re losing, so it’s always a big deal, but we do have several other businesses in the area sending people to us,” she said.
Takeda’s exit will have a dramatic effect on least one institution — Cristo Rey St. Martin College Prep, a private high school in Waukegan that requires students to spend five days each month working at area businesses. The work-study program helps offset the cost of tuition and gives students, many of whom come from low-income families, professional experience and exposure to potential careers, said Preston Kendall, president of Cristo Rey St. Martin College Prep.
Each job, shared by a team of four students, brings the school about $35,000, he said. Takeda had been the school’s biggest partner, providing nine of the 100 jobs in the school’s work-study program, Kendall said.
Between Takeda and other companies leaving the program, the school is still trying to find eight more jobs to employ 32 students. Kendall said the high school has good partnerships with other big employers in the area, including AbbVie, which recently agreed to fill nine full-time positions with students, up from seven.
But finding companies to partner with can be a challenge. Kendall said there doesn’t seem to be a lot of hiring going on in the area and maintaining connections at some companies has been a challenge as employees working with the school take promotions or switch jobs.
“We got kind of hammered, but they’ve (Takeda) been so good to us,” he said.
The construction site at 905 W. Fulton Market in Chicago is seen Jan. 8. Mondelez International plans to move its global headquarters, currently in Deerfield, to the address in April.
Takeda Pharmaceutical Co. is seeking a buyer for its 70-acre Deerfield campus, seen in 2014, as the company shifts to the Boston area.
AbbVie has announced it will buy Ireland’s Allergan, though it said it will not be moving its headquarters.