A nuanced market. That’s how Transwestern describes the Chicago office sector in the early months of 2024.
Headlines would have you believe that all office properties today are half vacant. That’s not true, as Transwestern’s Chicago Office Market Index shows. According to Transwestern’s fourth quarter 2023 index report, certain Chicago office buildings continue to boast solid occupancy rates and are attracting companies eager for high-quality office space.
It’s the flight-to-quality movement. Office tenants are increasingly seeking higher-quality office space. They’re paying more for this space but leasing less of it. This is good news for modern office buildings in strong locations filled with amenities.
The news isn’t as good, though, for older office properties that lack the amenities that companies are seeking today.
That’s why it’s little surprise that Transwestern’s Chicago Office Market Index report refers to the city’s office sector as a nuanced one: Vacancy rates at the end of 2023 werre far lower in prime office properties than they were in older spaces with fewer amenities. And Transwestern predicts that this trend will continue throughout 2024.
Transwestern’s Chicago Office Market Index is made up of the last 20 Class-A office buildings of more than 300,000 square feet built in Chicago’s Central Business District. This set of buildings contains some of the most desirable office space in the city’s CBD and is a leading indicator of office market conditions. The Chicago Office Market Index includes about 20.4 million square feet, representing about 13% of the CBD’s total office space.
According to Transwestern, the direct vacancy rate of Chicago Office Market Index properties was a fairly low 5.7% as of the end of the fourth quarter of 2023. That is 14.5 percentage points lower than the 20.2% direct vacancy rate for the overall Chicago CBD at the same time.
As new office properties arrive, Transwestern adds them to its index, removing the previous oldest properties from it. Transwestern says there are two office developments currently under construction that will be added to the index when they are completed: 360 N. Green St. and 919 W. Fulton St.
Both properties are in the Fulton Market neighborhood, where demand for new office space remains strong.
The new office property at 360 N. Green St. is scheduled to be delivered in March of 2024. It is 68.2% pre-leased and will add 493,680 square feet to the Chicago CBD’s office inventory.
The development at 919 W. Fulton St. recently broke ground. The 369,008-square-foot office development is 39.1% pre-leased and is expected to be completed in the spring of 2025.
The largest new lease recently signed at a building in Transwestern’s index was Monroe Capital’s lease of 40,000 square feet at 155 N. Wacker Drive. The largest renewal was Mesirow’s 110,000-square-foot deal at 353 N. Clark St.
Sublease space is available, too, in the index properties. Transwestern reported that there was more than 1.012 million square feet of sublease space among these properties as of the end of the fourth quarter of last year. That represented about 5% of the total inventory of the Chicago Office Market Index.
There are five blocks of sublease space larger than 50,000 square feet available at index buildings, the largest of which is Salesforce’s 119,950 square feet at 333 W. Wolf Point Plaza, Salesforce Tower.