Rocky. That’s the word that NAI Hiffman used to describe the Chicago suburban office market in its second-quarter metropolitan Chicago office report.
This isn’t surprising. The suburban Chicago office sector’s vacancy rate climbed to 27% during the second quarter. That’s up from a vacancy rate of 25.3% a year ago. It’s also an all-time high.
Net absorption numbers were grim, too. NAI Hiffman reported that net absorption totaled negative 196,012 square feet in the suburban Chicago office market during the second quarter. Year-to-date, net absorption has totaled negative 894,222 square feet in the suburban market.
And leasing activity? That was down, too. NAI Hiffman said that the suburban office market registered 784,284 square feet of new leasing activity during the second quarter. That is down from more than 1.5 million square feet of leases during the same quarter a year earlier.
NAI Hiffman reported that year-to-date leasing activity in the Chicago suburban office market stands at 2.2 miillion square feet, down 34.7% from the first half of 2023. This has had a major impact on Class-A space. Leasing activity for these higher-end office properties is down 59.9% from the first half of 2023. NAI Hiffman says that the flight-to-quality movement has moderated thanks to slowing job growth locally and many tenants prioritizing cost-cutting initiatives.
The reasons behind these numbers aren’t surprising. The demand for office space has fallen since the start of the COVID-19 pandemic. With the work-from-home movement still going strong, demand for office space has not recovered.
Then there are interest rates. These pose challenges to property owners, particularly those in the Class-B and Class-C office space. These challenges are only amplified because their owners often need to upgrade old or obsolete space if they want to attract and retain larger tenants.
It’s not surprising, either, that there has been plenty of discussion about converting older office space to other uses, such as multifamily housing.
NAI Hiffman points to several suburban Chicago office properties that are already slated for conversion. These include the former Sears campus at 3333 Beverly Road in Hoffman Estates, the Atrium Corporate Center at 3800 Golf Road in Rolling Meadows and 1699 E. Woodfield Road in Schaumburg.
As NAI Hiffman reports, these three conversions alone will remove more than 4 million square feet from the Chicago suburban office inventory.
While leasing activity was down in the Chicago suburbs, there were several notable office leases completed during the second quarter. NAI Hiffman cited Wheels’ 214,018-square-foot sublease at 1299 Zurich Way in Schaumburg, which ranked as one of the largest office leases the suburban market has seen during the last several years.
Also, Littlefuse inked a 53,000-square-foot lease at 6133 N. River Road in Rosemont during the second quarter, relocating its corporate headquarters from 8755 W. Higgins Road.
