CHICAGO—Chicago's CBD office market remained strong in the second quarter of 2017 as tenants absorbed space at a robust tempo. Direct vacancy did tick up to 11.6%, an increase of about 30 bps since the start of the year, according to a new market report from MBRE, but that was largely due to the opening of the CBD's new office towers in the West Loop at 444 W. Lake and 150 N. Riverside.
And leasing continues to be robust at these gleaming trophy spaces, the company found. Their tenants helped create 393,302 square feet of overall positive absorption in the second quarter, despite the shadow space left behind. The CBD currently has had more than 3.5 million square feet of sublease space available, somewhat less than the 3.8 million square feet at this time last year.
Year-to-date the CBD has seen more than 1.1 million square feet of positive absorption, almost all of it attributable to buildings in the West Loop. In all of 2015, the most active year since the recession, tenants absorbed around 1.8 million square feet.
The West Loop submarket saw more than 1.2 million square feet of absorption so far this year, and only North Michigan Ave. and the East Loop were able to edge over into positive territory. The former has had more than 131,000 square feet of positive absorption this year, and the latter just 20,000 square feet.
The other submarkets recorded small losses. The Central Loop, for example, has had 168,000 square feet of negative absorption this year, the most of any CBD submarket.
And it seems likely that this robust leasing activity will spur the development of new, class A trophy space in the West Loop. Among the big leases recently signed, Bank of America agreed to occupy 533,210 square feet at Howard Hughes Corp.'s future 1.4 million square foot development at 110 N. Wacker. In March, the Chicago Plan Commission approved the firm's proposal for the 51-story tower. And the BofA deal will allow it to move forward with the plan. The next most likely project is probably Tishman Speyer's proposed 1.1 million square foot tower at 130 N. Franklin.
the investment sales market has shown some signs of life this year. Montreal-based Ivanhoe Cambridge partnered with Chicago-based Callahan Capital Partners to buy from Metlife the 510,000 square foot 125 S. Wacker for $145 million.
And even though significant sales have come at a slower pace than in some recent years, MBRE believes the velocity is about to pick up considerably. The firm says that six major sales transactions are currently pending. Zeller Realty, for example, has agreed to sell 401 N. Michigan Ave., a 761,000 square foot tower, to Walton Street Capital for $370 million.
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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.
