While some pockets of the suburban market are improving quicker than others, overall vacancy witnessed a decrease in vacancy in the first half of 2018. According to Colliers International 2nd Quarter 2018 research, the outer submarkets are enjoying improved movement in the office sector.
Leasing volume in the suburban office market improved in the second quarter of 2018, as vacancy fell to 19.9 percent, down from the first quarter’s 20.4 percent. The year-over-year numbers are also an improvement, as the mid-year 2017 overall vacancy rate was 20.8 percent.
While vacancy in the Oak Brook market showed the greatest improvement over the last twelve months with a 1.9 percent decrease, the Northwest market remains the weakest of the suburban office markets, ending the second quarter at 22.9 percent. However, it too has shown improvement compared to mid-year 2017’s overall rate of 23.8 percent.
Class A vacancy in the suburban office market dropped to 19.9 percent in the first half of 2018, down from 20.4 percent in the first quarter and 20.8 percent during the same time period of 2017. When considering high quality, “true” Class A assets, second quarter 2018 vacancy is even lower, ending at 16.9 percent. The overall sublease vacancy rate remained relatively flat in the first half of 2018 at 1.4 percent, though that figure inched up slightly from the 1.0 percent recorded in Q2 2017.
The first half of 2018 ended with 43,889 square feet of positive year-to-date net absorption, compared to 196,808 square feet of negative net absorption reported during the first half of 2017. The north suburbs accounted for the most Class A absorption in the second quarter with 225,003 square feet—over 43 percent of the total 513,111 Class A space absorbed across the suburbs.
There are currently 49 properties in the suburban office market that can accommodate large (100,000 square feet and above) users, with 37 of them being Class A. However, when considering high quality, True Class A properties, there are only 12 that can accommodate a 100,000 square foot user. While there are few available large blocks of space in the O’Hare and Oak Brook markets, the Northwest market offers the majority of large block options.
One such building is downtown Evanston’s Orrington Plaza at 1603 Orrington Avenue. Chicago-based Golub & Company and Investcorp, based out of New York, sold the 20-story, 309,000-square-foot office tower in June, though Golub retains an ownership stake.
The average Class A gross asking rent ended the quarter at $29.71 per square foot gross, compared to $29.56 in the first quarter of 2018 and $29.18 at mid-year 2017. The average gross asking rent for all classes in Suburban Chicago also increased, rising to $21.03 per square foot gross compared to $20.99 at the end of the first quarter and $20.77 mid -year 2017.
There were 232,000 square feet of notable new lease transactions (of 50,000 square feet or greater) while 12 new lease transactions greater than 25,000 square feet were signed in the Chicago suburban office market in first half of 2018. There are more than 111 million square feet of total inventory across the suburban office sector, of which 19.9 percent was vacant at the close of the second quarter.