Downtown Chicago Office Market Ends Decade on High Note
Last year’s activity marked a 2.5% increase from 2018 and was in fact the strongest leasing volume for the decade, according to Cushman & Wakefield.
CHICAGO—The downtown Chicago office market ended 2019 with strong leaving volume, pushing the CBD’s overall activity for the year to 10.4 million square feet.
Last year’s activity marked a 2.5% increase from 2018 and was in fact the strongest leasing volume for the decade, according to Cushman & Wakefield.
New construction deliveries in the downtown core also reached a decade high of 2.6 million square feet in 2019, the brokerage firm states in its fourth quarter 2019 market snapshot report.
Scott Shelbourne, executive director, Cushman & Wakefield – Chicago downtown office leasing team, says, “Strong positive net absorption in Class A buildings confirms the demand for new, high-quality, and highly amenitized buildings. Recruitment and retention of employees continues to be one of the main drivers for the move to new and redeveloped buildings, such as 110 N. Wacker and the Old Post Office.”
He adds, “The requirements of many tenants today cannot be accommodated by a portion of existing assets, so those tenants have been moving to buildings that are keeping up with the new tenant demands, such as efficient floor plates, access to natural light and hospitality-quality amenities.”
Some of the report’s key data points include:
• The entry of high-quality space pushed overall gross asking rents up 3.4% to $40.70-per-square-foot, $1.34-per-square-foot higher than year-end 2018.
• Overall net absorption totaled 1.7 million square feet in 2019, a 195% increase year over year.
• Overall vacancy increased 100 basis points from the third quarter to 14.1%, due entirely to the delivery of the Old Post Office in the fourth quarter. Vacancy is expected to decline in 2020 and 2021 when several tenants move into this redeveloped space, including Uber (463,000 square feet), PepsiCo (192,000 square feet), and CBOE (180,000 square feet).
• With the signing of 600,000 square feet of new leases last year, the Fulton Market District’s vacancy rate declined by 350 basis points in the fourth quarter to 6.7%, the lowest in the CBD.
• Class A space accounted for 5.9 million square feet of new leases, 5.3% higher year over year.
• Propelled by 1.5 million square feet of leasing volume in 2019 at the Old Post Office, the West Loop was the most active submarket, recording 6.2 million square feet of lease transactions in 2019, up 27.9% from 2018 and accounting for 60% of total CBD leasing this year.
• A total of 6.4 million square feet of new office inventory now under construction is slated to deliver by the end of 2022, located primarily in the West Loop and Fulton Market. The largest projects include two in the West Loop, BMO Tower (1.5 million square feet) and Bank of America Tower (1.4 million square feet), and The Macy’s Building, a 652,452-square-foot office conversion redevelopment in the East Loop.
• Downtown investment sales slowed due to investor uncertainty surrounding Cook County tax reassessments and unease from tariff-based economic instability.