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Office Vacancy Rates Have Yet to Rise for CBD

CHICAGO-Experts differ on whether the office market will weather the storm relatively unscathed, or if it just that the worst has not yet hit.

By Gina Kenny | Updated on July 17, 2008

CHICAGO-There has been a lot of talk and feeling of “doom and gloom” in the Chicago office market, but the second quarter doesn’t show negative. Vacancy rates, in general, decreased in the Central Business District and rental rates generally increased slightly. Whether the office market will continue to hold off the economic malaise affecting other real estate sectors remains to be seen, however.

Overall vacancy decreased 70 basis points, and there was nearly one million sf of net absorption, according to a second quarter market report from Transwestern. Some of the decrease in vacancy is due to some office space being taken off the grid and being converted into hotels, says Tamara Kos, EVP with Transwestern. Floors at both the former IBM Building, 330 N. Wabash Ave., and 208 S. LaSalle will be converted into hotels. Vacancy has decreased from 10.5% in the first quarter to 10.2% at the end of the second quarter. Once vacancy rates hit the single digits, “that really is a fairly tight market,” Kos says. “Having a little bit more vacancy really would not be hurtful. It will give tenants more choices.”

Several buildings under construction are expected to be delivered in 2009 which will give tenants more choices and could increase vacancy rates as well. The majority of the buildings under construction are pre-leased but building owners will have problems leasing up the space in the existing buildings that are being vacated, says Christopher Wood with UGL Equis.

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