CHICAGO—According to the new MBRE Index,landlords of the 30 newest class A office buildings in downtownChicago saw, partly due to significant leases signed by tech firms,the direct vacancy rates for their properties decline over the lastquarter from 11.2% to 10.3%. The decline was a recovery from theprevious quarter, when the same buildings had an increase invacancy, breaking what had become a pattern of steady improvementin the market.

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“That was an unusual blip,” Andrew J. Davidson,executive vice president and managing director of corporateservices for MBRE, tells GlobeSt.com. Heattributed the increase to approximately 300,000-square-feet ofspace formerly occupied by the American MedicalAssociation at 515 N. State St. returning to the market.But this new decline “shows that class A space is going strong andit also reflects what's happening in the larger economy,” hesays.

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Since March, the direct vacancy rate has declined in 13 of the30 indexed buildings, all of which were built between 1989 and 2009and range from 372,000-square-feet to 1,845,460-square-feet.

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Davidson points out that the difference in vacancy rates betweenthe elite buildings and the rest of the CBD is now less than 4%.“That means the rest of the market is also recovering due to theeconomy's greater breadth.” By contrast, in December 2010, thatspread was 5.2%, and by March 2011 it had increased to 6.0%. “Evenclass B and class C office product is starting to see strongleasing activity.”

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One of the main factors driving down class A vacancy is thattech companies have begun to graduate from older buildings and intotop-of-the-line office towers. Apartments.com, forexample, recently moved from 175 W. Jackson and instead occupied40,033-square-feet at 540 W. Madison, the largest new tenancy inone of the index buildings. Although Davidson considers 175 W.Jackson a first-class renovation, “when we analyze the index, we'retracking the cream of the crop.”

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Other significant leases in the CBD include: ATKFoods, which this month began occupying 57,518-square-feetat 227 W. Monroe; Suntrust took 16,363-square-feetat 500 W. Monroe; and Greenberg Traurig decided tooccupy another 12,320-square-feet at 77 W. Wacker.

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“The big thing that I see happening is this incredible migrationof companies from the suburbs to the downtown, many of whom aremoving into class A spaces,” Davidson says. Furthermore, manysuburban companies have also begun moving their IT departments intothe CBD. FGMK, for example, an accounting andconsulting firm in suburban Bannockburn, had its IT group take afloor at 333 W. Wacker Dr.

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“I think we've reached a tipping point with tech firms,”Davidson adds. “They are no longer bargain hunters. They're willingto occupy great class A space, and that's a big change from adecade ago.”

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Brian J. Rogal

Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.