Downtown Office Vacancy Rates Continue To Rise
The addition of new Class-A office inventory continues to have an impact on the downtown leasing market, especially with vacancy rates. According to data from Cushman & Wakefield, vacancy rose to 13.9% in Q2, a change of 150 basis points from the rate at this point last year (12.4%). Overall absorption in the market dropped 21.2% year-to-year, from 826K SF in 2016 to 651K SF at the end of June. It is the first time since 2015 that absorption was negative.
This was expected after the Q1 reports from larger firms were released. The vacancy rate was predicted to rise because tenants are moving into newly delivered trophy assets like 150 North Riverside and River Point, leaving behind large blocks of vacant space that has not been re-leased. Other tenants are right-sizing their office footprints and contracting, adding further to available supply. More space is coming with the arrivals next year of 625 West Adams and 151 North Franklin.
But the vacancy rate has had no effect on rent spreads. Direct gross asking rents rose 7.2% in Q2 to $38.26/SF, with Class-C assets leading the charge.
