Office Leasing Plunges, Vacancy Rises in Chicago CBD

Office market conditions deteriorated in Chicago’s central business district in the first quarter, with direct leasing activity hitting an anemic 1.1M SF, the lowest level since Q3 2020.

Net absorption in the CBD totaled negative 1.4M SF in Q1 2024, with more than 938K SF of negative net absorption attributed to Class A properties, according to a market report from Transwestern.

The direct vacancy rate in Chicago’s CBD hit 21.2% in Q1, a 90 bps increase over the previous quarter and a 200 bps increase in a year-over-year comparison. The vacancy rate in Class A office buildings rose to 18.9%, while the combined vacancy rate for Class B and C offices in the CBD increased to 26.3%.

“Large amounts of new inventory came online just when leasing activity came to a standstill, leaving many large blocks of vacancy difficult to fill,” Transwestern’s report said. “Chicago’s vacancy rate can be expected to climb even further as sublease spaces roll to direct availability and tenant contractions come to fruition.”

Market rents held steady at $41.90 per square foot in the CBD despite elevated vacancy. Landlords have widely elected to offer more robust concession packages while maintaining face rents, the report said.

About 300K SF of Groupon’s former space at 600 W. Chicago Avenue in River North became directly available after spending years on the sublease market. In November, Groupon paid $9.6M to terminate its lease two years early, moving to a 25K SF space on Wacker Drive.

The most positive news in the CBD office sector in the first quarter came from JPMorgan Chase, which announced at the end of February it is committed to remain in its 1.9M SF tower at 10 S. Dearborn Street in the Central Loop.

JPMorgan Chase said it will invest in a “top-to-bottom” renovation of the 55-story Chase Tower, which is home to 7,200 of the bank’s employees.

There were two office investment sales completed in the CBD in Q1, both of which represented a significant loss of value, the report said.

R2 purchased 150 N. Michigan Ave. for $60M, or $92 per SF, a property that last sold for $121M in 2017. The Community Solution Education System and the Chicago School purchased an office building that Tyson Foods vacated in 2022 at 400 S. Jefferson St. for $38.5M, or $156 per SF; the building was last sold for $97.5M in 2013.

“The majority of buildings currently on the market are likely to be worth less than the existing debt on the property,” Transwestern’s report said.