It’s been an incredibly busy year for the West Loop and Riverwest, and a report from Avison Young shows that it won’t be slowing down any time soon.
There were 3.7 million square feet of completed projects from Q4 of 2016 through Q2 of 2017, an increase from just 100,000 square feet completed during the same time period, ending mid-year in 2016. Fulton Market, in the Riverwest neighborhood, has seen strong players relocate their offices in order to attract top talent.
In Riverwest big names including Google and McDonalds are leading the migration. There is a vacancy of 14.2 percent with a limited supply of Class A product. Asking rental rates have ticked upwards to $28.42 per square foot with Class A averaging at $32.05 per square foot.
In the West Loop location vacancy was recorded at 13.2 percent, up 60 bps over last quarter. Class A product had a higher vacancy which could be a result of River North Point and 150 North Riverside Plaza. The trophy office towers are about 30 percent vacant. Average asking rents were at $27.95 per square foot with certain Class A product reaching $35.00 per square foot.
“There is considerable demand for high quality office space in the West Loop and Riverwest submarkets,” said Jeff Lindenmeyer in a statement, a principal with Avison Young’s Chicago office. “The hype we are hearing about these newer office locations is real—the demand is substantial and sustainable.”
At mid-year, there are eight office properties totaling 2.4 million square feet that are under construction, which is less than the 4.7 million square feet that was completed last year. While there is lots of construction for top of the line office space, much of the shadow space will be backfilled.
Owners of older properties are being more aggressive with tenant improvements and building upgrades. As long as owners focus on maintenance and continue to upgrade amenities and refresh finishes at least every 10 years they should still have an edge in the highly competitive market.
Many anchor tenants leave large shadow space and then downsize at a new location—Avison Young expects that trend to continue. Tenants who relocate will use space planning and design to do more with less office.
Foreign investment and interest rate hikes are a few things to watch for this year. Three of the top five CBD office investment sales have been purchased by foreign capital, represented $528 million of the $556 million transactional volume. The Federal Reserve has raised rates twice in the first half of 2017, with an additional hike expected in 2018.
