CHICAGO—As reported in GlobeSt.com, the Chicago region's industrial market has slowed down a bit, and it looks like the office market may also tap the brakes in 2018 as well. According to a fourth quarter report from Newmark Knight Frank, year-to-date absorption hit 2.1 million square feet, sending the vacancy rate down 40 bps to 17.4%, the lowest rate of the year. And rental rates went up 1.1% to $27.47. But NKF also says other trends are becoming visible.
“While the statistics show positive movement and tenant demand, a significant amount of the leasing activity was made up of consolidations or contractions as companies continue to economize workspace,” the firm says. This was particularly true of law and marketing firms, and NKF expects the amount of “shadow space” on the market to tick up throughout the coming year. “The new buildings being delivered to the Central Business District market have contributed to this trend as they have larger, open floor plates, which allow tenants to be more efficient with their employee-per-square foot ratios.”
In the fourth quarter, for example, some of the most significant leases were renewals. Fifth Third Bank held onto its 145,000 square feet at 222 South Riverside Plaza, which the firm first occupied in 2005 when it moved from suburban Rolling Meadows. Like many downtown landlords, the owner has kept the building current. A recent $50 million upgrade added a new tenant lounge and game room, among other amenities.
The CBD's vacancy rate now stands at 13.3%, a decline of 20 bps in the past quarter, according to NKF. The firm expects vacancy to climb in 2018 as 151 N. Franklin and 625 W. Adams open for business. The two properties still have about 800,000 square feet of space available. Furthermore, 2.5 million square feet in the Old Main Post Office will be ready by early 2019.
Technology and finance will continue to push the market, NKF says, but a volatile political environment, in the state and the US, could have an adverse impact. “Despite all these factors,” NKF says, “tenants and investors alike should view this as a plateau or slowdown of sorts not a downturn of the market.”
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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.
