Office N Illinois

Chicago CBD shows improved office numbers, but new deliveries could drive up vacancy

Chicago CBD shows improved office numbers, but new deliveries could drive,ph1

Nationwide, office activity had a restrained start to the year, but the second quarter was much more encouraging as markets started to pick up in activity. Chicago had a steady second quarter, but could the pipeline of new deliveries drive down vacancy by the end of 2019?

According to Colliers International’s top office markets snapshot, which will be released tomorrow, eight of the top 10 office markets saw positive absorption in the second quarter. The key driver for this demand was, in nearly all cases, technology and coworking users.

In the Chicago CBD, activity was steady during the second quarter, with net absorption shifting up to 441,070 square feet. Asking rents and vacancy rates were flat, however.

Average asking rates edged up only slightly to $41.75 per square foot, with the highest—$44.90 per square foot—occurring in the West Loop. Average Class A rents stood at $48.70 per square foot. Tenants seeking the top floors of the most prestigious trophy towers will need to pony up approximately $60 per square foot.

Vacancy also held firm at 12.7 percent. Tenants’ strong partiality for high-quality space was evident in Class A office space vacancy, which was tighter at 10.9 percent. Submarket to submarket, the West Loop continued it’s streak as downtown’s hottest area, coming in slightly below the market average with a 12.3 percent vacancy rate. There were higher vacancy rates recorded in the Central Loop and East Loop at 14.2 and 14.4 percent, respectively.

Colliers tracked 16 office leases of 50,000 square feet or larger that were signed in the second quarter totaling 1.7 million square feet. This includes the City of Chicago’s leasing 222,825 square feet at 2 N. LaSalle Street. The Old Post Office, which is undergoing an estimated $900 million renovation, has attracted a number of large users, such as The Federal Home Loan Bank of Chicago which is leasing approximately 125,000 square feet.

The national trend of high tech and coworking demand held true locally. In June, Colliers represented Silicon Valley-based Verifone in a 27,392-square-foot lease at 550 W. Jackson in Chicago. Among the many tenants who have preleased at the redeveloping Old Post Office were tech firms Cisco Systems and Uber.

Coworking was the other trend and the sector leader, WeWork signed one of the largest leases, taking 140,000 square feet at 167 N. Green and also leasing 53,000 square feet at 1 S. Dearborn Avenue. The coworking giant now has 11 locations in downtown Chicago.

On the horizon, however, office vacancy could skyrocket with new deliveries. The Old Main Post Office project alone, due to complete in the third quarter, will add around 2.8 million square feet to the city’s ledger. Other confirmed or rumored tenants include Cboe, Walgreens and Ferrara Candy, but the development still remains almost 70 percent vacant.