What do the most recent numbers – some of them have yet to be released to the public – tell him? Among Fifield's conclusions is the current downturn in the Downtown multifamily market may be overblown, while the Downtown office market should continue to benefit from demographic trends that work against the suburbs, except those along Metra commuter lines. Also, even the current Central Business District submarket vacancy are probably grossly overstated in some cases.

"There's really a fundamental change going on in the city," Fifield says, pointing to an increase in population, with a heavy dose of young knowledge workers, such as those in the tech field. "We're hearing a lot from major employers that their employees hate the reverse commute. They're having a hard time recruiting. That bodes well long-term for office demand in the city."

The city's reversal of its decades-long population loss to the suburbs has fueled a multifamily boom, which appeared to have turned to bust by year's end. "Occupancies have blipped down as of the end of the year," says Fifield, whose source is an upcoming Appraisal Research Counselors report that will show the fourth quarter rate in the high 80s.

However, that blip, at least in the 15,000-unit Downtown rental market, can be traced to two factors, Fifield says. Corporations that once controlled 1,000 units began turning them back when the recession officially started in March, he explains, which pales by comparison to the aggressive price cutting by a major property owner.

Fifield says Charles E. Smith Residential, which has 5,000 units Downtown, began offering concessions of one month's free rent last year. Other property owner's followed suit, Fifield says, which only lowered all boats in the multifamily unit sea.

"They shot themselves in the foot," Fifield says. "It didn't change the underlying demand. No one moved out of a non-Charles Smith building into their building."

Meanwhile, Downtown office absorption checks in at 711,000 sf in 2001, the lowest total in seven years, Fifield adds. CB Richard Ellis pegs Downtown vacancy rising from 8.2% at the start of 2001 to 10% at year's end. However, Fifield quibbles with the inclusion of 1.3 million sf of space at e-port along the Chicago River. "I don't think they're competitive. That's added a whole percentage point to the statistics," Fifield says. He adds it doubled the River North submarket vacancy rate to an alarming 26%.

Fifield sees the office vacancy rate peaking by the end of the year, before 11 million sf in lease expirations roll over in 2003-05. However, he sees vacancy rates dropping under 10%. "This market does not get into any ridiculous vacancy situations over the next four years," Fifield says.

However, a complete liquidation of Arthur Andersen, which rents 850,000 sf Downtown would add a percentage point to the vacancy rate, Fifield says.

Instant Insights /

Fifield Sees Silver Lining in Sector Numbers

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