Both office leases and availability were relatively stable in the fourth quarter of 2017 in downtown Chicago. According to a report from Savills Studley, the CBD’s overall office availability rate was unchanged at 15.5% and tenant leases saw above-average activity for the third straight quarter. But a number of large deliveries may shake things up before long.
Corporate expansions and workplace redesign urged a slightly upward leasing trend as 2017 closed out. Facebook, for example, increased its roughly 25,000-square-foot space in 191 N. Wacker Drive to now occupy more than 100,000 square feet across three floors.
Suburban relocations also continue to beef up Chicago’s downtown. Adtalem Global Education (formerly DeVry Education Group) moved its headquarters from Downers Grove to 500 W. Monroe Street, leasing about 32,000 square feet. A spokesperson for the for-profit college chain said the change of scenery was an attempt to “recruit world-class diverse talent.”
“Leasing activity has remained remarkably consistent during the second half of the year,” Eric Feinberg, senior vice president of Savills Studley was quoted in the report. “Area businesses continue to make significant investments in their workforce and workplace.”
On average last year, tenants leased 3.0 million square feet in the fourth quarter. Deal volume for all of 2017 was 10.6 million square feet, 15.2% above the long-term historical average of 9.2 million square feet.
A slight increase in Class A availability in the CBD accompanied these leases, due to new construction and space consolidation. The rate of Class A availability rose by 70 basis points to 16.7% during the quarter, returning to the mark set at the end of 2016.
Class A rents saw a modest rise in the final quarter of 2017; the average $44.56 per square foot was a 1.6 percent increase. Downtown asking rent overall mostly kept pace at 1.4 percent, rising from $38.83 to $39.36 per square foot.
“Some landlords leasing space in older, second-generation space brought their rent up along with the rest of the market, but they may have over-priced,” the authors of the report wrote. “Space with poor natural light and outdated layouts needs to be discounted significantly from higher-caliber space. The most cost-conscious firms can find more affordably priced space … in the East and Central Loops.”
Change is looming, however, with new construction likely to lead to space consolidation by major tenants. Many large, Class A office buildings are now online or delivering soon, such as 625 W. Adams Street, 151 N. Franklin Street and 110 N. Wacker Drive, scheduled to go up on the current site of GGP’s squat, river-front headquarters by 2021. The two latter properties are each approximately 50 percent pre-leased while 625 W. Adams, which will deliver this year, has yet to secure any leases.
And the Old Main Post Office redevelopment continues to draw larger tenant interest. Once completed, that project will add 2.6 million square feet to the market—the city’s biggest delivery in several decades. These four developments alone have nearly 4.0 million square feet still available for lease.