In the last six months, office-using employment in Chicago has increased with more than 6,800 jobs and along with that the leasing activity has grown 35 percent to 2.7 million square feet in the second quarter, according to an office report from Savills-Studley released in August.
Office leasing activity also jumped up in the second quarter to 2.7 million square feet, which exceeds the long-term market average of 2.3 million square feet. Class A availability closed mid-year at 16.2 percent and has exceeded 15 percent every quarter since the first quarter of 2016.
Rents have pushed higher as well, in part due to the high percentage of new product and because landlords remain confident. Their confidence is bolstered by the influx of companies from suburban Chicago and the expansion of the tech sector. Employers in the area, such as Allstate, who said it will bring 400 tech jobs to its innovation center at the Mart.
The new construction also allows companies to reevaluate how they use space and truly optimize their office for efficiency. Some have been able to reduce their occupancy by as much as 20 percent, according to the Savills-Studley report.
Bank of America, for example, signed a 533,210-square-foot lease at 110 N. Wacker Dr., which is much smaller than the combined 1.1 million square feet the company currently leases at 135 S. LaSalle St. and 540 W. Madison St. Both of those leases expire within the next four years, although it is unknown how much space the company will shed at these buildings. GGP is also downsizing from 227,000-square-feet at 110 N. Wacker Dr. to a 160,000-square-foot lease at 350 N. Orleans St.
While larger law firms and banks are shedding space, some tech and creative sector firms are still expanding. ActiveCampaign recently signed a 52,233-square-foot lease at 1 N. Dearborn St. The marketing and sales automation firm will more than triple from the 16,000-square-feet it currently occupies at 22 S. Riverside Plaza. Snapsheet will make a third move within two years upgrading to a 52,210-square-foot least at 1 N. Dearborn St.
As for investors, Chicago still remains a top target. Since few trophy assets are on the market, investors continue to pursue value-add A-/B+ assets. Pricing for these properties comes in at about $300 per square foot. Golub has teamed up with Alcion Ventures in the purchase of 300 S. Wacker Dr. for $155 million, about $275 per square foot. Beacon Capital paid nearly 40 percent less for the building in 2013. Another significant transaction include 401 N Michigan which Walton Street is under contract to buy for nearly $307 million at $502 per square foot. Zeller Realty Group is the seller.
Landlords have decided that now is a smart time to cash out. CIM Group put 625 N. Michigan Avenue on the market and the building, excluding the retail portion, is expected to sell for as much as $75 million, a big jump from the $48 million that the group paid in 2015.
Other buildings on the market include the 1.1-million-square-foot 161 N. Clark St. building which could command $400 million, also the John Hancock Center as well as 225 W. Wacker Dr.
Looking ahead, tenants with upcoming lease expirations are likely to encounter higher rent. Landlords are willing to extend generous concessions to creditworthy tenants signing long-term leases, according to the Savills-Studley report. Some owners will be more aggressive as they sense that this cycle is losing some of its kick.
