This followed on the heels of the strongest quarter for the city's CBD in the past five years. Direct vacancy fell 30 basis points to 15.1% in the fourth quarter. For the second consecutive quarter, each building class saw a decline in vacancy.

The Central Loop outperformed all other Chicago submarkets in in terms of net absorption and reduction in direct vacancy, according to MBRE.

Comprising 28% of the total CBD inventory, the Central Loop accounted for over 59%, or 148,000 square feet, of the total market's net absorption. Because of this, its direct vacancy fell 40 basis points to 13.2%, MB Real Estate said.

The River North and West Loop submarkets also outperformed the overall market. The South Loop was the only area to experience negative absorption.

Looking ahead, the report says that underutilized space remains the biggest negative for to the market. Other concerns include higher national tax rates; the lingering effects of the Eurozone crisis; shrinking space requirements per employee; reduced storage needs due to digital archiving; reduced server space needs due to cloud computing; and higher state corporate tax rates.

Positives include the increased trend of businesses relocating to the CBD; rapidly expanding tech firms; no new supply expected until at least 2016; and increased corporate confidence, the MBRE report says.

Solid demand in the second half of 2012 brightened the market's outlook, MBRE says. But slow job growth and tenants eliminating underused space have muted the recovery. As such, MBRE said its baseline forecast sees modest positive absorption, resulting in a slight decline in vacancy over the next two years.

Instant Insights /

Chicago's Central Loop Best Performing CBD Submarket in Q4, MBRE Says

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