News
Chicago Office in '13?
December 19, 2012
| The Chicago office market will lag behind national trends for two years. | ||
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| Healthy office markets require job growth (or one guy who insists on having a whole building to himself), and CBRE Econometric Advisors numbers whiz Arthur Jones tells us in ’13 and ‘14 Chicago will lag the other 62 US markets that he tracks. The number of office-using jobs in our region is 5.6% below the pre-recession peak. On average, job growth in other US markets is 2.2% below peak. Chicago’s overall economy is still grappling with a weak housing market, state and local government fiscal problems, the slowing manufacturing recovery, and the high cost of doing business. The good news about Chicago office market performance in ’13 is stable demand, falling vacancies, and an economy that will grow. | ||
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| The move back downtown from the ‘burbs like Motorola Mobility’s 572k SF lease at the Merchandise Mart (above) will continue. Rents are well below the long-term average and 11% below peak. Art forecasts average gross effective rents downtown will rise 5.6% in the next two years on an annual average basis. By Q3 ’14 in River North, they’ll reach $27.37; in the West Loop, $27.55; and North Michigan Ave, $27.91. This year, strong demand led to the net absorption of 308k SF, which brought down the vacancy rate to 13.3%, and positions downtown for future growth, Art says. | ||
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| Overall, the metro area also saw healthy net absorption of 2.9M SF, like the 205k SF United Airlines leased at 233 S Wacker Dr (above). The region’s vacancy rate reduced to 16.8%, from 18% a year earlier. But in the ‘burbs, the 21% vacancy rate reflects weak demand; far from the 8.5% at the last peak in ’98. (Oh, dot-com, you broke our heart, but we miss you.) By ’03, the bubble burst. Vacancy in the 'burbs shot up to 22.3% and hasn’t fully recovered. Gross effective rents are now $19.51, far below the ’99 peak of $26.51. When the region approaches its long-term average vacancy rate, 15.4%, Art expects substantial rent growth. Hang in. | ||
