CHICAGO-While there has been an increase in office leasing activity in Chicago starting Jan. 1, researchers agree in recent first quarter reports that minimal job growth and empty sublease space ensures that 2011 vacancy will remain flat at about 16% in the Downtown.

Good news still abounds, however. Positive indicators include companies willing to expand rather than consolidate, and virtually no planned development, says Dan McCarthy, a tenant representative with Jones Lang LaSalle.

“We’re cautiously optimistic,” says McCarthy. “We’re happy to see the velocity of the deals improve, there’s a better mix of transactions, it’s not all downsizing and giving back space. But we’re cautious about whether this will be sustainable, whether it will translate into good fundamentals.”

There will be additional jobs added this year, resulting in an 800 basis point increase in occupied space, according to Marcus & Millichap’s first quarter report. Downtown properties are fetching cat rates of 6.5% or less, though there hasn’t been enough trading to determine the new normal, according to the report.

Though the increase in demand will be insufficient to drive significant rent growth, competition will grow as development is at a crawling pace. Only about half a million square feet of new office construction will come online in 2011, compared to an average 3.2 million square feet.

However, there are large tenants out there looking. According to JLL, companies that are evaluating space downtown for move in by 2013 include Aon Insurance (350,000 square feet), PricewaterhouseCoopers (280,000 square feet), Fifth Third Bank (225,000 square feet), US Bank (170,000), Credit Suisse (150,000 square feet) and McKinsey & Co. (100,000 square feet). Two more are looking to fill space by 2014, SNR Denton (200,000 square feet) and Integrys (150,000 square feet).

McCarthy says even though these tenants are shopping around, it’s not likely that a tall tower will be built in the next few years. “Probably the new development that will come next will be one of these smaller buildings, say around 500,000 to 600,000 square feet. A big building would need two-to-three tenants to get it financed, that would be tough to do in this market, but a smaller building can get going with just one tenant.”