Office Availability In Downtown Chicago Is On The Rise, And Rents Are Hitting A Plateau

Developers are set to bring millions of square feet of new trophy office space to Chicago's Central Business District by the end of 2020, and although these buildings, such as the Old Main Post Office and 110 North Wacker Drive, are attracting healthy levels of leasing activity, all this construction is opening up a lot of opportunities for tenants, and landlords are working harder to land deals.

The Chicago CBD saw 405K SF of positive absorption during the third quarter, according to a new report from Cresa Chicago. That pushed the vacancy rate down to 13.2%, but the availability rate increased to 19.4%, and rental rates continued to slide, decreasing $0.33 to $34.27.

The availability rate had been just a bit more than 18.5% in the first quarter, and rental rates topped out at more than $35 in the fourth quarter of last year, the Cresa report said.   

"For Class-A and B office buildings, concessions have continued to be strong with tenant improvement allowances coming to just below $10 per year per SF being the average," the report said. "In addition, abatement follows the same trend with one month per year being the norm."

There are 13 buildings under construction in the CBD, which will total 6.9M SF when they hit the market.

Investors may also be shaking off worries about the expected rise in property taxes once Cook County Assessor Fritz Kaegi recalibrates the city's assessments.

"Building transactions have increased significantly from the prior quarter, up to $511M from $125M in the second quarter," Cresa found.