While office leasing downtown is slowly but surely regaining traction, leasing activity in the suburbs is a different story. Just months ago, a rise in in-person employees fueled the hope of landlords, but now they’re faced with a second wave of uncertainty, as vacancy climbs even higher than the start of the pandemic.
Both Colliers and Crain’s said that both leasing and sale velocity slowed at the end of Q3, due partially to economic concerns from both owners and occupiers, but numbers do vary from market to market.
O’Hare was reported to have the lowest vacancy in the suburbs at 22%, while the NW market offered the most space at 32% vacancy. Much of the leasing activity was due to company downsizing, spiking sublease activity as larger tenants—US Cellular in Chicago, Centene in Burr Ridge and LTD Commodities in Lincolnshire—placed space on the market.
On top of that, absorption reached negative 356,369 square feet during the same period, most of it being lower-class assets, signaling to landlords they must shift their strategy to attract and maintain reliable users in today’s market.
But it’s not all bad news. Incentive is the key to getting employees back to the office once and for all, as proven by the highly amenitized and well-located assets that continue to see the majority of the transaction volume.
Ten new lease transactions over 15,000 square feet were signed throughout the suburbs during Q3 2022, including Northwest Medicine’s 81,500-square-foot lease at Oak Brook Medical Commons in Oak Brook, Pivotal Corporation’s 80,000-square-foot lease at 1415 W. Diehl Road in Naperville and Life Fitness’ 57,000-square-foot lease at Columbia Centre III in Rosemont.
Colliers has predicted that increasing interest rates, recession concerns and work-from-home challenges will cause a slowdown in the office market and high vacancy, distressed properties will continue to be returned to lenders throughout the coming months.