CHICAGO—Office employment in the region only grew by only 1.2% in 2016, but deal volume among class A properties in the downtown surpassed 10 million square feet for the second year in a row. Landlords were able to take advantage of all this activity and boost rental rates, according to the Savills Studley Effective Rent Index. The average total rent increased 5.6% in 2016, and stood at $50.35.
That's a new peak, and the effective rent for landlords, meaning the total rent minus expenses such as operating expenses and taxes, hit $14.73, a 13.6% increase.
“The effective rent is very important, because it paints a true picture of what's going on,” Eric Feinberg, senior vice president and co-head for Savills Studley's Chicago Region, tells GlobeSt.com. “Rent only tells part of the story.”
And even though many expenses increased, the continued migration of suburban firms into the downtown was a big help to CBD property owners. Still, Feinberg thinks landlords have already seen the largest wave of companies that will make this move, and from now on “it's going to come at a slower pace.”
And the opening of several new towers in the West Loop has given office seekers a few more options.
“That provided a relief valve for the pent-up demand for new class A space,” says Feinberg. “It is also causing holes to open up in the previous generation of class A offices, so there will be no shortage of space in 2017.”
The new office towers contributed to a 200 bps jump in availability rate during 2016, and along with a slower suburban migration, these new options should have an impact on rental rates.
“No one has a crystal ball,” Feinberg says, “but in general, all of this new development, including in the new office markets like Fulton Market and Goose Island, are going to drag pricing down. We believe the increase in rates will slow, if not flatten.”
CHICAGO—Office employment in the region only grew by only 1.2% in 2016, but deal volume among class A properties in the downtown surpassed 10 million square feet for the second year in a row. Landlords were able to take advantage of all this activity and boost rental rates, according to the Savills Studley Effective Rent Index. The average total rent increased 5.6% in 2016, and stood at $50.35.
That's a new peak, and the effective rent for landlords, meaning the total rent minus expenses such as operating expenses and taxes, hit $14.73, a 13.6% increase.
“The effective rent is very important, because it paints a true picture of what's going on,” Eric Feinberg, senior vice president and co-head for Savills Studley's Chicago Region, tells GlobeSt.com. “Rent only tells part of the story.”
And even though many expenses increased, the continued migration of suburban firms into the downtown was a big help to CBD property owners. Still, Feinberg thinks landlords have already seen the largest wave of companies that will make this move, and from now on “it's going to come at a slower pace.”
And the opening of several new towers in the West Loop has given office seekers a few more options.
“That provided a relief valve for the pent-up demand for new class A space,” says Feinberg. “It is also causing holes to open up in the previous generation of class A offices, so there will be no shortage of space in 2017.”
The new office towers contributed to a 200 bps jump in availability rate during 2016, and along with a slower suburban migration, these new options should have an impact on rental rates.
“No one has a crystal ball,” Feinberg says, “but in general, all of this new development, including in the new office markets like Fulton Market and Goose Island, are going to drag pricing down. We believe the increase in rates will slow, if not flatten.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
