TUESDAY, JANUARY 05, 2010
by Illinois Real Estate Journal ReportsChicagoThe metro Chicago office market ended the 4th quarter on a good note, with 198,000 square feet of positive absorption, but the 2009 totals were more sobering with negative 3.1 million square feet of absorption, according to
Transwestern's year-end office report.
The positive absorption was due to the delivery of major pre-leased facilities in the CBD, mainly the 1.2-million-square-foot Mesirow Financial Building at
353 N. Clark. The building is 87 percent leased. The suburban market continued to decline, with 403,000 square feet of negative absorption in the 4th quarter.
The story in the office sector in 2009 was the employment market. In the past 12 months, metro Chicago shed 197,800 jobs, a 4.4 percent decline from year-ago numbers. The lack of demand resulted in escalating vacancy rates and declining rental rates.
Overall vacancy climbed to 15 percent in the 4th quarter, up from 13 percent a year ago. Rental rates suffered and fell 4.7 percent in 2009. The most dramatic drop came in CBD class A rents, which fell 10.9 percent, according to Transwestern.
The employment outlook for 2010 is lackluster, but 2011 could see a trend in increased hiring.
The Metro Chicago unemployment rate was 10.3 percent in October 2009, up from 6.2 percent a year ago, but down from 11.0 percent in June 2009. The national unemployment rate was 10.2 percent in October 2009 and declined to 10.0 percent in November.
According to the report, Transwestern "expect(s) job losses to ease in 2010, as the national economy begins to recover. However, we do expect Metro Chicago's employment base to experience modest job losses next year, before adding approximately 45,000 jobs in 2011, as economic growth picks up. Chicago's traditional position as a transportation/distribution hub and business center will help promote growth in the next 12 to 24 months."
The firm predicts that overall office vacancy will reach 16 percent in 2010, while modest growth will resume in the second half of the year. Vacancy rates should begin to decline in 2011. Rental rates will continue to dip throughout the year.
Investment salesInvestment sales ended the year a mere fraction of 2008 totals.
The report recorded office investment sales of $551 million in metro Chicago in 2009, compared to $2.3 billion in 2008. Sales activity totaled $149 million during the 4th quarter. The CBD experienced its first major sale in the 4th quarter, as American Executive Developers acquired
303 West Madison Street for $60 million ($193/SF). USAA Real Estate's first quarter purchase of the FBI Chicago Field Office at
2111 W. Roosevelt Road in the City South submarket for $170 million ($396/SF) was the largest transaction of the year.
ConstructionThe construction pipeline has dwindled in both the downtown and suburban markets. There is 800,000 square feet of office space under construction in the Chicago CBD at year-end 2009, down from 2 million square feet in the 3rd quarter and 4.5 million square feet a year ago. The 24-story, 800,000-square-foot addition to the Blue Cross Blue Shield (BCBS) building at 300 E. Randolph Street is scheduled to be completed in 2010 and is fully leased to BCBS with Baker & McKenzie leasing 237,000 square feet in the building commencing December 2012.
Currently, there is 1.4 million square feet of office space under construction or renovation in suburban Chicago at year-end 2009, compared to 1.6 million square feet last quarter and 2.1 million square feet a year ago. Space currently under construction is 45 percent pre-leased, compared to 48 percent last quarter and 36 percent a year ago.
Stimulus UpdateThe report also provides a tally of current stimulus projects in the Chicago area.
There are 621 active projects in the Chicago metro area that are receiving Federal stimulus dollars allocated under the American Recovery and Reinvestment Act of 2009 (ARRA). The total value of all active projects is $2 billion, with the vast majority, 354 projects valued at $1.5 billion, underway in Cook County.
According to Recovery.gov, the total estimated impact on the State of Illinois over the next two years will be 148,000 jobs created or saved as a direct result of ARRA.
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