CHICAGO—According to the new MBRE Index, landlords of the 30 newest class A office buildings in downtown Chicago saw, partly due to significant leases signed by tech firms, the direct vacancy rates for their properties decline over the last quarter from 11.2% to 10.3%. The decline was a recovery from the previous quarter, when the same buildings had an increase in vacancy, breaking what had become a pattern of steady improvement in the market.
“That was an unusual blip,” Andrew J. Davidson, executive vice president and managing director of corporate services for MBRE, tells GlobeSt.com. He attributed the increase to approximately 300,000-square-feet of space formerly occupied by the American Medical Association at 515 N. State St. returning to the market. But this new decline “shows that class A space is going strong and it also reflects what's happening in the larger economy,” he says.
Since March, the direct vacancy rate has declined in 13 of the 30 indexed buildings, all of which were built between 1989 and 2009 and range from 372,000-square-feet to 1,845,460-square-feet.
Davidson points out that the difference in vacancy rates between the elite buildings and the rest of the CBD is now less than 4%. “That means the rest of the market is also recovering due to the economy's greater breadth.” By contrast, in December 2010, that spread was 5.2%, and by March 2011 it had increased to 6.0%. “Even class B and class C office product is starting to see strong leasing activity.”
One of the main factors driving down class A vacancy is that tech companies have begun to graduate from older buildings and into top-of-the-line office towers. Apartments.com, for example, recently moved from 175 W. Jackson and instead occupied 40,033-square-feet at 540 W. Madison, the largest new tenancy in one of the index buildings. Although Davidson considers 175 W. Jackson a first-class renovation, “when we analyze the index, we're tracking the cream of the crop.”
Other significant leases in the CBD include: ATK Foods, which this month began occupying 57,518-square-feet at 227 W. Monroe; Suntrust took 16,363-square-feet at 500 W. Monroe; and Greenberg Traurig decided to occupy another 12,320-square-feet at 77 W. Wacker.
“The big thing that I see happening is this incredible migration of companies from the suburbs to the downtown, many of whom are moving into class A spaces,” Davidson says. Furthermore, many suburban companies have also begun moving their IT departments into the CBD. FGMK, for example, an accounting and consulting firm in suburban Bannockburn, had its IT group take a floor at 333 W. Wacker Dr.
“I think we've reached a tipping point with tech firms,” Davidson adds. “They are no longer bargain hunters. They're willing to occupy great class A space, and that's a big change from a decade ago.”
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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.
