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Availability Rate in the CBD Headed Up

CHICAGO—The new class A space underway in the West Loop and Fulton Market has already started changing the downtown office market.

By Brian J. Rogal | brianjrogal | | Updated on August 09, 2016

 

Chi-150-North-Riverside Chicago’s 150 N. Riverside will be the largest building delivered next year.
CHICAGO—Big changes are on the way in Chicago’s downtown office market, and some signs of that may have become visible in the second quarter. For the first time in more than a year, the overall availability rate increased, jumping 50 bps from 14. 7% to 15.2%, according to Savills Studley , which just published a research report on activity in the CBD. The firm attributes the increase to the new class A space underway in the West Loop and Fulton Market area. And activity is very likely to increase, as the three office towers nearing completion are already about 70% pre-leased, and this should spur developers to launch additional projects in the hot submarkets. Furthermore, rents have also started to surge. In the second quarter, overall asking rents in the CBD increased from $36.37 to $37.45, a jump of 3.0%. Class A properties were disproportionately responsible for that increase, and went from $40.24 to $41.87, an increase of 4.0%. Savills Studley points out that landlords of the newest trophy buildings in the West Loop have rented those spaces for more than $50.00, sometimes for considerably more, further boosting the overall average.       Tenants continue to lease space at an impressive rate. About 2.8 million square feet was leased in the second quarter, according to Savills Studley, and 2.4 million square feet in the first. That brings the total for the four most recent quarters to 13.3 million square feet, far more than the long-term annual average of 8.9 million square feet. “Chicago’s office market remains on a steady course – sustained leasing continues to draw down limited supply,” says Eric Feinberg, senior vice president of Savills Studley. “Turbulence in the tech sector and difficulty raising additional funds has forced some companies to delay expansion plans, and may be boosting sublet space, but so far this is far from a marketwide phenomenon.”

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