Vacancy is also declining due to the strong economy, withcompanies expanding both in their current locations as well ascompanies expanding in new buildings, Smith says. There isespecially a "tightening" of the market for "better view" space inthe West Loop, Smith says.

The market is segmented in the West Loop with less vacancy forclass A space than class B and not a lot of movement in the class Cmarket, says Geoffrey Euston, senior vice president with USEquities. "Currently, in the class C markets, there is a lot ofadaptive reuse going on" such as space being converted into studenthousing, Euston says.

Rents are increasing in both the Chicago and suburban markets,in part because of the increasing cost to construct new buildings."If it costs more to build a building, they will not build itunless they can get a rent that justifies their expectations ofprofits," Euston says. Many class A and class B office buildingshave also switched hands during the past few years, which have leadto higher lease rates. "A significant amount of the downtown classA and class B buildings have been bought and sold," Smith says. "Asthat has happened, the expectations and the underwriting oflandlords have risen."