(Bloomberg) — A neglected part of downtown Chicago is perking up as Alphabet Inc. redevelops a 1980s-vintage building designed to house legions of state government workers.
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Startups and other small companies have been snapping up space in the LaSalle Corridor district, which once served as the city’s financial center and as backdrop for movies from The Dark Knight to The Untouchables. The catalyst: the renovation of the James R. Thompson Center, where Alphabet’s Google plans to start moving workers next year.
The real estate rush — part of a wider phenomenon often dubbed the “Google effect” in which the tech giant drives real estate investment around its offices — is fueling signs of recovery in a hard-hit part of downtown as Chicago struggles to rebound from the pandemic. Since Google announced the project in 2022, office leasing volume has advanced 14% in LaSalle Corridor, compared with a 13% drop in the broader Central Loop district of which it’s a part.
Within just a half-mile radius of the Thompson Center, the gain is 23%, according to real estate brokerage CBRE Group Inc.
“We’re just getting started in terms of being able to see the Google effect,” said Jeffrey Cheng, chief executive officer of Nautilus Solar Energy, which relocated from New Jersey to Chicago last year and took space near the Thompson Center. “The commercialization of this area is only going to continue to increase, which is going to be great for our employees and our company just to be an ancillary beneficiary of that effect.”
Google’s investment has a complement in a JPMorgan Chase & Co. renovation just three blocks away. The bank, which is requiring employees to be in the office five days a week, is overhauling its longtime office tower with a revamp of all floors plus a new lobby, gym and food hall-style cafeteria.
The bank has 7,000 employees in the tower and expects the renovations to be complete in mid-2027, said Anthony Maggiore, managing director and segment head of Midwest and Canada commercial banking. The “combined effect” of the JPMorgan and Google projects will boost the neighborhood, Maggiore said.
Google has said it eventually plans to purchase the Thompson Center from the developers managing the revamp, signaling a long-term investment in the area comparable to JPMorgan’s.
“The commitment just says a lot,” said Michael Reschke, one of the project’s developers.
It’s not the first time the Mountain View, California-based company has reshaped a Chicago neighborhood. In 2015, Google redeveloped an office in the city’s Fulton Market neighborhood. Over time, the district became a trendy hot spot for tech companies, high-end retail and restaurants. In the years since Google moved in, office rental rates in the submarket have more than doubled, according to data from real estate brokerage Jones Lang LaSalle.
The Thompson Center project will breathe new life into downtown, said Rob Biederman, head of US state and local government affairs for Google, adding that the company has a history of preserving and reusing historic structures.
Google declined to say how many of its 2,000 Chicago employees would move into the building, or how many square feet the company would take up. The company has long-term leases at its Fulton Market locations that meet its current space needs, and it didn’t say whether it plans to stay at those properties after the opening of the Thompson Center.
The Central Loop could use a boost. It was one of Chicago’s worst-hit areas during the pandemic as offices emptied out. Vacancy was still 30% in the first quarter, a little higher than the 27% in the overall Chicago market, according to office data compiled by CBRE. The district’s 11 million square feet (1 million square meters) of empty space amounts to a major overhang of unused high-end space. The Thompson Center has 1.15 million square feet, according to the architecture firm that built it.
The Illinois state government considered selling the Thompson Center for years as a way to ease long-running budget woes, said Andy Manar, deputy governor for budget and economy and a former state senator.
“The running joke was, how many times can we sell the Thompson Center over and over to balance the state’s budget,” he said.
Under Governor JB Pritzker, the state finally got a deal done. It sold the property to the developers in 2022, in a transaction that valued the property at $105 million. Illinois got $30 million in cash plus the deed to another nearby property where it could move state employees. The developers then brought in Google.
“It was about correcting mistakes or getting things done that hadn’t been done in years,” Manar said.
It will take years to see the full effect of Google’s move, brokers cautioned. No other major companies have signed new leases on LaSalle recently, although CoStar News, a real estate information platform, has reported that market-data provider Morningstar is weighing whether to lease space from Google.
The broader Central Loop area has some other tailwinds, however. The nearby West Loop has won over a lot of financial companies and other big customers over the last two decades or so, leading to higher prices and a lack of choices for new tenants.
“If you want to be in West Loop, your options are slim if you want to be in Class A and trophy” space, said Karoline Eigel, a broker with Cushman & Wakefield. “So I think you’ll start seeing more people looking at Central Loop.
Startups such as ElectronX, a power-derivatives exchange, are betting that Google’s presence will bolster the neighborhood. The area also has strong transit options and a wealth of offices, hotels and restaurants within walking distance.
“From a recruitment perspective, from just that proximity perspective, I would expect there to be lots of other more innovative companies coming in around here,” said Sam Tegel, CEO of power-derivatives exchange company ElectronX, which recently moved into a building across the street from the Thompson Center. “That gave us comfort and confidence.”
Real estate veterans share the sentiment.
John Vance, a principle with Stone Real Estate, said Google’s move is “such a statement of ‘Yeah, we believe in the office as the best environment to work for most people,’ and that is important for all downtowns.”
Allen Rogoway, a broker with tenant representative firm Cresa, recently assisted a subsidiary of French technology services company Equiniti in relocating from West Town to LaSalle Street.
“When clients talk about submarkets and places to be, it’s real,” he said. “Get in now because expectations are that as the submarket starts to build on itself with Google, it will be going up.”
–With assistance from Julia Love.
(Updates with additional details on JPMorgan project in seventh paragraph.)
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