But the pendulum may be swinging back toward the tenant, even though most new construction is being pre-leased. "I'm seeing people pulling back left and right, getting very conservative and trying to minimize the time on their lease," said Jeff Liljeberg, senior vice president for CB Richard Ellis.
In 2000, downtown demand was greatest for Class A properties, which had a vacancy rate of just 5.6%, and properties in River North, where the vacancy rate in the area just north of the Loop was a tight 6.6%. The West Loop was just as hot, with a vacancy rate of 6.7%, according to the CB Richard Ellis study. Examples of just how tight the market is in those areas were Dearborn Plaza at 20 W. Kinzie in River North and 550 W. Washington Blvd. Just west of the Loop. Those buildings opened 98% leased, according to CB Richard Ellis. Both properties are close to public transportation, high on the wish list of companies aiming to attract and keep employees.
Liljeberg said it wasn't uncommon recently to see several prospects vying for top spaces, which for the winner means paying rents ranging from $21 per sf to $32 per sf for Class A properties. Although some once white-hot dot-com companies ended the year with a whimper, if not out of business, any slack in demand was being picked up by law firms, financial service companies as well as the telecommunications industry.
Liljeberg and a high-tech client experienced that firsthand recently. They were vying for a sublease of elaborately renovated space vacated by a dot-com company. "It was very attractive to other high-tech companies," Liljeberg said. Unfortunately, he and his client were competing against two Old Economy companies, and lost out. "In the environment that we're in, the likelihood of receiving rent payments is a priority for landlords," Liljeberg said. "There's competition, and it had nothing to do with the rent the tenant is willing to pay. Instead, it had to do with creditworthiness. That's a different set of circumstances we didn't face in the first half of 2000 and we'll continue to see it in the foreseeable future."
Tenants shopping for the the best deals downtown might be advised to look at Class C properties, which saw their vacancy rate drop to 13.3%, and properties in the East Loop, where the vacancy rate ended the year at 11.1%.However, gross rents in Class C buildings still averaged $23 per sf to $26 per sf, according to the CB Richard Ellis survey.
While most landlords did well, those brokering the downtown deals also had a good 2000. The marketplace saw 2.7 million sf of space leased in 2000, almost double 1999 and nearly matching 1998's 2.9 million sf.
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