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CHICAGO-The Downtown Chicago office vacancy rate increased during third quarter 2002 to 10.8%, up from 10.6% the previous quarter, according to research by CB Richard Ellis Inc. The research survey report tracks the available space for direct lease in 111.5 million sf of downtown office buildings. Last year at this time, the vacancy rate was 9.5%. Factoring in a separate supply of sublease space, which CB Richard Ellis estimates at 5.3 million sf, the vacancy rate rises to 15.6%.

Net absorption from July through September was positive 64,200 sf, compared with positive 249,260 sf during third quarter 2001. Net absorption year-to-date is negative 66,640 sf, compared with positive 322,400 sf during the first nine months of 2001 and the previous five-year average for the period of positive 1.6 million sf. According to the CB Richard Ellis report, this is the first time since 1993 that the aborption level for the first nine months has been negative.

There was one new building that opened fully leased during third quarter 2002, the 408,000-sf 555 W. Monroe building. Completions for the year will total 1.7 million sf, matching 2001, with the fourth quarter opening of 191 N. Wacker Drive. Dearborn Center, at 131 S. Dearborn St., is scheduled to open in January 2003.

“Although demand for space on the part of small tenants is fairly strong, large tenant activity remains well below pre-2001 levels, but is showing signs of increasing,” said Bob Gillespie, an SVP at the Downtown Chicago office of CB Richard Ellis. He added that anchor-driven projects in the pipeline for delivery through 2004 total about 2.8 million sf, exceeding CBD absorption level projections for the period.

In terms of submarkets, the report shows positive absorption levels during third quarter 2003 in the West Loop, 1.2 million sf; River North, 123,430 sf; and North Michigan Avenue, 36,010 sf. Losing ground in negative absorption were: the Central Loop, 1.4 million sf; and the East Loop, 63,010 sf.

According to Gillespie, that rental rates are continuing to edge downward in all classes of buildings. Net rental rates for trophy properties typically ranges from $24 to $28 per sf. In Class A buildings, the range was $19 per sf to $24 per sf, and in Class B from $14 per sf to $18 per sf.

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