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CHICAGO-Office building sales volume has only increased, and prices have become richer, even though total returns in the local market are less than half the national average, according to a recent report. Transwestern Commercial Services’ Delta Associates research arm notes the National Council of Real Estate Investment Fiduciaries (NCREIF) pegged total return for Chicago office properties at 7.3%, lowest among 12 selected areas.

Capitalization rates for Chicago office properties are about 7.8% through the first nine months of 2005, according to Delta Associates. Meanwhile, sales volume through September stood at $2.8 billion, on track to finish below the nearly $4 billion in deals done in 2004.

“Investor interest in real estate remains strong locally, just as it does nationwide, due to superior returns compared to alternative investments,” according to the companies’ “Trend Lines” report. “Required returns from investors on core office assets in metro Chicago have decreased over the past several years, as cap rates dropped from the mid-8% level to sub-7%. We expect cap rates to stabilize this year. Cap rates may begin rising in the period ahead as interest rates move up.”

For long-term owners of office buildings, the report edited by Delta Associates chief executive officer Gregory H. Leisch notes the market is seeing job growth, although at a meager 0.8% for the 12 months ending in August. However, that follows four years of declines, and the 34,000 new jobs tend to be higher-paying professional and business services positions.

“CBD rents will likely stabilize in 2006, as demand rises and vacancy begins a gradual decline,” according to the report. “We expect suburban Chicago’s vacancy to continue a cyclical decline in 2006, as demand increases.”

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