There has been a shift in the dynamics of the downtown Chicago office market. New Q2 numbers express favorable tendencies for tenants, as rental rates plateau and available options overflow.
Overall office availability in Chicago, according to Savills research, closed out the second quarter at 16.3 percent, a 60-basis-point rise year over year. Office vacancies are quite stark neighborhood to neighborhood, of course, with the East Loop—once among the city’s tightest submarkets—one example of softening fundamentals.
The overall availability rate in the East Loop rose to 18.4 percent, a staggering 310-basis-point leap year over year. This availability is largely due to tenants giving back space or relocating from the submarket, such as retail giant Walgreen’s forthcoming departure at Sullivan Center and engineering firm Sargent & Lundy’s slimming down at 55 E. Monroe Street. The office conversion of the upper half of the Macy’s building on State Street will add another 650,000 square feet to the submarket.
Conversely, the hottest neighborhood was again the West Loop. Seven of the 10 largest transactions this quarter occurred within the city’s largest office submarket. Legal firm Perkins Coie LLP, for example, leased 101,840 square feet across four floors at 110 N. Wacker Drive, the new tower under construction from developers Riverside Investment & Development and Howard Hughes. Further west, coworking firm WeWork committed to 140,000 square feet at 167 N. Green Street, the Fulton Market property developed by Shapack Partners and Focus.
It’s not just location; quality is also a determiner. Class A availability fell 40 basis points compared to the second quarter of 2018, dropping to 14.5 percent, and showing that demand for high-quality office space remains elevated. Additionally, six of the 14 largest transactions completed in the second quarter occurred in new or redeveloped construction.
For example, as well as its Fulton Market location, WeWork leased three floors at 625 W. Adams Street, totaling approximately 90,000 square feet. The $800 million renovation that 601W Companies is conducting at the Old Post Office has attracted a number of tenants, most recently Silicon Valley giant Cisco Systems (81,000 square feet), rideshare firm Uber (450,000 square feet) and Kroger subsidiaries Home Chef and 84.51° (74,245 and 56,698 square feet, respectively).
According to Savills, asking rents across the entire downtown averaged $40.96 per square foot for office space, which is actually a 3.3 percent rise year over year. However, rents slid by 0.1 percent from the first quarter and Class A asking rents saw only a modest quarter-over-quarter increase, up 0.2 percent to $46.61 per square foot.
The largest asking rents in the CBD are in the Far West Loop/Fulton Market, at $45.96 per square foot, followed by $43.75 per square foot in the West Loop. River North is commanding $40.55 per square foot while the Central Loop bottoms out the list with $38.55 per square foot asking rents.
Currently, many office users are either right-sizing or seeking out hipper office digs in the West Loop/Fulton Market to attract and retain young professionals. Both of these factors mean that large tenants may see an increased number of options across downtown, though opportunities in new developments are drying up.