Office in Downtown Chicago is still an upward battle, with few signs of it returning to pre-pandemic occupancy any time soon. Though Chicagoland continues to face similar obstacles, there are more glimmers of light, based on the Q4 Chicago Suburbs Real Estate Insight Report by JLL.
While Chicagoland ended the year with marginal positive net absorption, it’s the first time the suburban office market has done so since the end of 2019. Like Downtown Chicago, Class A office product continues to outperform the suburban market, accumulating 653,000 square feet in net absorption over the last year—the most it’s experienced since Q4 2019, and accounted 70% of all the positive absorption realized in 2022.
That said, JLL said the progress made by quality office assets this year was offset by lesser office product. The largest move-in came from Abbott after they moved into the 160,000-square-foot Horizon Therapeutics office space in Lake Forest.
As for leasing volume, it grew consecutively over the last two years but remains 27% below the full-year pre-pandemic five-year average, based on the report. Strong transaction volume in 1H2022 was on track to meet full-year pre-pandemic averages until users started to question the health of the macro economy and began to “recession-proof” and downsize their office footprint by adding space to the sublease market, giving back space to the landlord or through the adoption mobility programs while shedding space in the process. Total transaction volume during this period fell by 50% QoQ, which was the largest drop since Q4 2020, and JLL predicts the softened leasing momentum to carry into the next few months.
What else can be expected for the suburban office market going forward? It will still largely depend on users’ predictions regarding the macro-economy and their related decisions. In good news, JLL has tracked expansive employee layoffs and right-sizing users across the U.S., which Chicagoland has yet to experience, comparatively, within its headquartered firms.
While overall leasing is trending in the wrong direction, JLL maintains that active users are still looking for quality offices, hurting landlords of older buildings. In fact, JLL is tracking an uptick in financially distressed office buildings, most of which are Class B.
As Q1 2023 continues, JLL said to expect a better indication of the future of office, especially has more businesses set return to office expectations.
