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CBD Office Market Feeling Effects of Economy

CHICAGO-Rents have remained steady, but are expected to decline while vacancy increases, particularly when new construction comes online next year.

By Gina Kenny | Updated on May 12, 2008

CHICAGO-The Chicago Central Business District experienced negative absorption in the first quarter of 2008 but, otherwise, has emerged relatively unscathed from a downturn in the economy. The upcoming months, however, are expected to show a slightly bleaker picture if the economy does not quickly improve. Effective rental rates are expected to decrease; due mostly to an increase in concessions, and vacancy is expected to increase, particularly when new space comes online in 2009.

The district had negative absorption of 469,117 sf in the first quarter and the vacancy rate increased to more than 12%. However, more than 300,000 sf of the negative absorption was due to JPMorgan/Chase’s relinquishing of space at 120 S. LaSalle, says Mark Buth, SVP and managing director of leasing services for MB Real Estate. “They had the right to terminate in 2009. Ownership negotiated with the bank,” which will allow for Private Bank to lease 105,000 sf, he says.

Many companies are taking a “wait and see” approach on whether to lease or renew. Companies that would have renewed a lease last year are now waiting until the last possible moment “so they can let the economy settle down,” says Christopher Wood, managing director at UGL Equis.

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