CHICAGO—The Chicago office market posted a solid performance in the fourth quarter with an uptick in absorption and falling vacancy while rents held firm, according to a new report from Colliers International. Net absorption totaled 488,960 square feet, and River North, at 7.1%, has by far the lowest vacancy rate of the four downtown submarkets. Overall market vacancy stands at 11.6%.
Like most of the nation's top markets, tech remains an important driver of demand in Chicago. In fact, it has helped ease the pain of many landlords that lost tenants to the West Loop's new trophy towers.
“The Central Loop has done surprisingly well landing younger tech companies looking to pay a bit less than they would for space in River North,” Robert Patterson, research analyst with Colliers' downtown Chicago office advisory group, tells GlobeSt.com.
The opportunities to take over space in the Central Loop has come about largely because so many of its major tenants moved to West Loop properties near the river. 444 W. Lake, for example, which opened in the fourth quarter of 2016, landed law firms McDermott, Will & Emery and DLA Piper as anchor tenants. Central Loop landlords may have needed aggressive deals to fill their spaces, Patterson adds, but “tech has been the one driver of growth in the Central Loop.”
The West Loop trophies are already “stable and about as filled as they can be,” he says. That should be a sign that the downtown office market is headed into an era of greater expansion and rising rents, but with so much new space still on the way, the picture is not yet clear.
John Buck's tower at 151 N. Franklin is now about 50% pre-leased, and still has space in its top half available. “They're holding out for that last large user to come in and stabilize the building,” Patterson says. And 110 N. Wacker by Riverside Investment & Development and Howard Hughes was able to get started after landing Bank of America as an anchor tenant. “I anticipate that it will do just as well as the other new buildings along the river.”
Of more concern is 625 W. Adams, which will soon open but does not yet have any tenants. Located between the train lines that run along the river and the hot Fulton Market neighborhood, “it's just the wrong place for a building right now.”
But the future direction of the CBD's office market will truly become apparent as the opening date of the 2.5 million square foot Old Main Post Office draws near. 601W Cos. anticipates it will be ready by early 2019. Patterson says the developer is close to signing an anchor tenant that will occupy around 300,000 to 400,000 square feet. Although a tenant that size is a relatively small step for a project on this scale, such a deal would send an important signal that adequate demand for new space exists.
Still, “I think things are swinging in favor of tenants,” Patterson says. Rental rates are likely to remain flat, and landlords will increasing offer more generous concessions and improvement programs to secure deals.
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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.
