CHICAGO-A tight vacancy rate for the newest large class A office buildings downtown offer some proof that recent announcements of large tower plans should have some chance of being leased. According to a June report by MB Real Estate, the 10 newest office buildings average vacancy of about 4.1%, which when added to an extreme lack of large block supply shows a definite need for new office downtown.
The MBRE Real Estate Index, included in the company’s monthly Marketbeat research publication, lists the vacancy rate of the 30 class A office buildings larger than 300,000 square feet built in the CBD in the past 23 years. While the current total downtown office vacancy is at 15.8%, the 30 most recent buildings (the oldest built in 1989) have vacancy of only 10.2%.
Andrew Davidson, EVP and managing director of corporate services, tells GlobeSt.com that this is the second largest spread since 2008. The spread was 6.2% when vacancy for the newer 30 shrank to 9.9% for a brief period in June 2011, but the overall market rose to 16.1%.
Basically, Davidson says the low vacancy for the newest buildings, combined with how very small the choices are for tenants looking for space larger than 200,000 square feet, show that one of the proposed large towers could gain tenants and lending approval this year (notwithstanding Hines’ proposed River Point project, which is going forward as spec).
The most recent four buildings – 353 N. Clark, 155. N. Wacker, 300 N. LaSalle and 22 W. Washington, total about four million square feet but average only 4.5% vacant, according to Davidson. “There’s nothing but good news for new office product,” he says. “That’s certainly enough to get something launched.”
New leases should start landing, he says, even at the projected mid-$30s net prices likely to be charged by new tower owners. River Point will likely have a head start, but other projects, especially those within the West Loop and near court buildings, should also gain traction as company’s pull triggers on deals. “I imagine the class B buildings should also start seeing improvements just because there’s not a ton of class A space left,” Davidson says.
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