CBD Office Market Still Looks Strong

CHICAGO—New building deliveries may have just pushed up the CBD’s vacancy rate, but a look behind that number shows an office market with a lot of vigor. That rate increased 80 bps to 13.5% by the end of the second quarter, according to Newmark Knight Frank. The company attributes the increase partly to the delivery of 625 W. Adams, a 20-story spec tower in the West Loop, and CNA leaving 600,000 square feet vacant in the East Loop after its move into the new trophy property at 150 N. Franklin St.

“Although this created enough negative absorption in the market to drive up the vacancy rate, there were some positive events that indicated market strength and helped offset these moves,” according to NKF, including the migration of suburban firms into the CBD. McDonald’s, for example, occupied its new headquarters at 1045 W. Randolph after decades spent in Oak Brook. And Peapod moved from Skokie into 53,000 square feet of space at 300 S. Riverside Plaza.

Furthermore, other downtown firms keep expanding. Facebook occupied new floors at 191 N. Wacker Dr. and Constellation Brands, Inc. expanded by 25,000 square feet in its move to 131 S. Dearborn St. Publicis Groupe signed the largest lease in the metro area by renewing and expanding at 35 W. Wacker for a total of 680,000 square feet.

Downtown rental rates did fall slightly to $35.42, but that is still near the high of $35.86 reached last quarter, NKF says. And overall, average asking rates in the metro area increased to $29.15, a 6.5% boost since last year. Absorption in the metro area totaled 698,574 square feet, after hitting 877,113 square feet in the first quarter.

NKF also has a positive outlook on the near future. It expects WeWork, Facebook and Google to complete new leases in the third quarter. In addition, the market won’t see any more office deliveries until a revived Old Main Post Office opens up in 2019, giving it time to absorb more of the space left empty by recent moves.