There are still plenty of unknowns when it comes to the downtown office market, but now more than ever, it feels like things are finally getting back to normal. Don’t expect the office to look exactly the same as it did before we left however, as businesses and designers have been discussing and seeking to implement what the post-pandemic workplace will look and feel like. But one thing that is for certain, is that there is still a lot of office space to fill in the greater downtown market.
We also now have a more concrete idea of how this year is starting to shake out. A recent report from Colliers highlights a number of important metrics to follow, including a list of the biggest office transactions downtown in the first quarter of 2021 and which buildings have the most sublease exposure. There’s also a breakdown of submarket activity. Spoiler alert: The Fulton Market area led the pack by far when it came to office vacancy in the first few months of year.
By the end of the first quarter, the overall central business district vacancy stood at 16.1%, which the report notes as being the highest vacancy level in fifteen years. However, there is some optimism that this figure will trend down in the coming months as more leases come due for renewal or expiration. But overall, considering that many companies will be looking to downsize, the report suggests that the recovery from the pandemic may take longer than the recoveries from previous recessions.
The top three leases in terms of overall square footage were Nixon Peabody’s renewal and expansion at 70 W. Madison where the firm is taking just over 72,000 square feet, James Hardie’s new 67,734-square-foot lease at 303 E. Wacker, and then Fox 32’s renewal of its 64,283-square-foot studio and offices at 205 N. Michigan Avenue. The following seven office leases were between 30,000 and 38,000 square feet of space.
One of the biggest trends in office space that has come from the pandemic is the theme of downsizing. Companies that are already stuck in longterm are looking to offset loses by marketing a section of their space for sublease. The sheer amount of sublease space available in downtown Chicago has pinned traditional commercial landlords against sub-landlords, but this competition is creating major opportunities for businesses looking to move in the coming quarters.
The address with the greatest sublease exposure is 600 W. Chicago. Colliers figures indicate that the building had nearly 324,000 square feet of total sublease space available at the end of Q1 2021. The former Montgomery Ward warehouse has been home to Groupon for the last decade, but now the company is looking to unload as much of its office space as possible. In May 2020, the company listed 150,000 square feet — or half of its foot print at 600 W. Chicago — for sublease, then this past February, the company offered up its remaining 150,000 square feet for sublease.
Another building with major sublease exposure is 101 N. Wacker with nearly 249,000 square feet of space listed for sublet. Ad company Conversant listed its 107,000-square-foot HQ at 101 N. Wacker last September and then in December, rail freight car company TTX listed its 103,000-square-foot office on the sublease market.
The following 12 buildings on the list of properties with biggest sublease exposure all have anywhere between 100,000 to 189,000 square feet of sublease space available.
But subleasing isn’t the only game in town. There are numerous other buildings that had large blocks of available contiguous space by the end of Q1. According to Colliers, there is now over 8 million square feet of space available as large blocks downtown, with 39 blocks of contiguous space at 100,000 or more being in just 37 buildings. The property with the largest single block of available office space is at 135 S. LaSalle Street where Bank of America vacated its 696,404-square-foot former home office to move into its new namesake tower at 110 N. Wacker.
Despite the troubles in the downtown office market, there’s still more space on the way. In the first quarter of 2021, four new office buildings — two in Fulton Market and two in River North — were completed while another ten were still under construction. When delivered over the next few years, those ten new buildings will add another 3.9 million square feet of office space to the CBD. Colliers notes that 80% of the space in these upcoming buildings are still available for lease.
In terms of overall outlook, Colliers analysts continue to see downtown Chicago as a tenant’s market for the near term future. And while leasing activity did pick up in the first few months of 2021, the focus going forward will be companies downsizing, or “rightsizing” to allow for hybrid work from home and company office models.