CHICAGO—The Chicago region's office market has been putting up solid numbers for several years, but in the first quarter of 2015, net absorption turned negative according to a new report by Newmark Grubb Knight Frank. After seeing more than one million square feet of positive net absorption in the fourth quarter, the market registered net absorption of -125,131 square feet and the vacancy rate ticked up from 17.1% to 17.2%.
The firm found that leasing activity was strong overall, but a few sizable vacancies wiped out the gains made. BMO Harris Bank moved out of nearly 250,000 square feet at 311 W. Monroe St., and an entire floor of the Merchandise Mart was converted to office space, adding another 135,000 square feet of vacant space.
The vacancies will be temporary. As reported in GlobeSt.com, for example, Mesa West Capital provided $68 million in first mortgage debt to a joint venture of Prudential Real Estate Investors and GlenStar Properties for the recent acquisition of 311 W. Monroe St. The partners plan to reposition the 364,000-square-foot building with a multi-million dollar capital plan and leasing campaign.
Most of these new vacancies happened in the CBD and drove the net absorption down to -423,502 square feet. The suburban office market actually outperformed the downtown by scoring 298,371 square feet of positive net absorption. The vacancy rate in the CBD went up to 13.9%, an increase of 30 bps, while the suburbs in turn improved by 30 bps, dropping to 20.8%.
Still, the firm gives the regional market an upbeat forecast. Asking rental rates in the market averaged $26.91 per square foot, a 1.6% boost over one year ago. And investors continue to be quite bullish about prospects for the region. In the past 12 months, NGKF says, investment sales volume totaled $6.9 billion, the most since 2007.
“Three buildings are currently under construction on a speculative basis in the CBD,” the firm adds. “The rental rates these brand new, state-of-the-art buildings will demand, along with declining vacancy and limited blocks of quality available space, will push average rental rates in the CBD even higher over the coming quarters and years.”
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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.
