The downtown Chicago office market was relatively flat in the first quarter of the year, according to a CBRE report. One main reason is corporations giving back space as they right-size their footprints. The CBD’s modest positive absorption last quarter—39,437 square feet—was driven by consulting, legal and wholesale trade tenants.
Financial consultancy Deloitte, for example, restructured and renewed, trading up from 207,160 square feet at 111 S. Wacker Drive to now occupy about 291,000 square feet. Constellation Brands, a Victor, New York-based alcoholic beverage conglomerate, moved out of its 106,624-square-foot space at 1 S. Dearborn Street down the street to 131 S. Dearborn Street where they now take up 131,218 square feet.
The Chicago office market ended the first quarter with a direct vacancy rate of 12.1 percent, a slight decline of 10 basis points from the previous quarter. Although the overall vacancy rate remained relatively flat, Class A product had a 90 basis point decrease in direct vacancy, starting the year at 11.8 percent. Class A rents also rose—1.4 percent year-over-year, or $0.62 per square foot. West Loop Class A buildings outperformed the rest of the CBD in Q1 2018 with 124,569 square feet of positive absorption.
Among the different CBD submarkets, all had positive absorption but one: the West Loop (which CBRE defines as an area defined by Wells Street, Congress Parkway, the Kennedy Expressway and Fulton Street/Wacker Drive). That area had positive absorption for Class A buildings, but it hemorrhaged Class B and C space, for a combined 279,041 square feet of negative absorption.
While there were no deliveries this past quarter, construction is nearly complete on two West Loop developments. Pre-leasing on 151 N. Franklin Street, which should be delivered this quarter, is at about 55 percent. 625 W. Adams Street set to deliver in Q3 2018, has yet to secure an anchor tenant.
By contrast, 110 N. Wacker Drive is already 40 percent pre-leased even though construction hasn’t begun. The Howard Hughes Corp.-developed trophy tower on the site of the recently demolished former GGP headquarters building just signed middle-market investment bank Lincoln International into approximately 60,000 square feet.
Average gross asking rents went up 1.2 percent (ending at $39.46 per square foot) from the previous quarter, equating to an increase of $0.46 per square foot. The growth in gross asking rents this quarter can be attributed to the rising Cook County property tax, a trend that will likely continue into 2019.