A whopper office building deal to end 2021 is certainly welcomed news to professionals in the world of Chicago commercial real estate, particularly on the heels of yet another bumpy year in the downtown office market. According to the Wall Street Journal, private equity group Oak Hill Advisors has agreed to purchase a controlling stake in the new 110 North Wacker office building from developer Howard Hughes Corporation.
The big news however, is that the 57-story Class A office high-rise is valued at over $1 billion.
The deal comes at a time when the downtown office market is still struggling to grapple with the “new normal” of hybrid and work-from-home schedules that many office workers have adopted since the start of the pandemic. Vacant space and a flood of sublease space has plagued many downtown office buildings as many companies have re-evaluated how much space is really needed to conduct business in the age of COVID.
A recent office market report from Colliers suggested that there was growing confidence in Class A properties, and the news of the 110 North Wacker deal could be considered a confirmation of that theme. By the end of Q3, the downtown Chicago office market had an overall vacancy rate of 17.7%, which is noticeably higher than the 13.8% from the same period a year prior.
Net absorption numbers are also troubling, as the total volume was negative 3.95 million square feet by the end of Q3. And there remains over 6 million square feet of sublease space on the market.
“Despite high negative absorption, a bright spot is leasing activity which continues to increase,” the report reads. “Approximately 245 CBD office deals were signed in the third quarter of 2021 – about 100 more than were signed third quarter of 2020 – demonstrating that tenants are motivated to make deals in this soft market environment.”
The report also highlights the uptick in commuter and pedestrian activity downtown over the last several months. The Chicago Loop Alliance had been tracking this data over the course of the year, highlighting indicators such as street parking, hotel stays, and pedestrian activity to offer a synopsis on the overall health of the Loop.
However, the other big theme to keep an eye on is the increasing polarity in the quality of office space. The theme of 2021 was the “flight to quality,” and this is a theme that pertains to investors as well as client tenants.
“The office market is beginning to show signs of life with several notable new deal and expansion signings, but they are not enough to reverse the downward trend until mid-2022,” the Colliers report suggests. “That said, there has not been a better time in Chicago office history to be a tenant.”
