Office Vacancy Plummets in Downtown Chicago

CHICAGO—Vacancy has plummeted in Downtown Chicago as companies continue to expand their presence, according to a new report from Marcus & Millichap. Users in the CBD absorbed another 1.9 million square feet, far outpacing new completions in the past year, slashing vacancy 90 bps to 14.0% by March, roughly 200 bps below the metro average.

And tech firms should play a key role in sustaining a healthy level of downtown activity.

“Facebook and Google, in particular, are both looking to increase their presence in downtown Chicago, potentially bringing many higher-paying jobs to the area,” M&M says.

Although major development projects such as the Old Main Post Office are underway, developers completed just about 730,000 square feet of office space in the Chicago metro area during the past 12 months, including 244,000 square feet in the city, according to M&M.

The suburban office market also put up good numbers so far this year. The small amount of new suburban office space completed helped the area’s vacancy rate plummet 190 bps during the past 12 months to 18.0%. An additional 336,000 square feet of suburban space is underway and scheduled for delivery this year.

Asking rent in the suburbs rose 1.4% during the year ending in the first quarter, to an average of $20.77 per square foot. By contrast, the average asking rent in the urban core declined minimally to $29.79 per square foot.

The rest of the year should be solid for the entire metro area. Developers will complete 3.3 million square feet of new space in 2018, up from the 2.4 million square feet delivered in 2017, according to M&M. “This will mark the highest number of deliveries since 2009.”

And net absorption of 5.9 million square feet in 2018 will slash the metro vacancy rate 70 bps to 16.1%, company researchers say. The prior year, vacancy also fell 70 bps. Furthermore, “building on last year’s 1.6% increase, the average asking rent will rise to $25.01 per square foot in 2018.”