Chicago Office Vacancy Sets Fresh Record High

Demand for Chicago offices is starting to emerge as the pandemic wanes, but new supply is growing faster — and staying empty.

The conundrum resulted in a new record-high vacancy rate of 21.2 percent in the city’s central business district — the second-largest in the nation — at the end of March, Crain’s reported, citing CBRE data. That’s up from 19.7 percent on Jan. 1, and the previous historic high of 20 percent set in the third quarter last year.

The recent vacancy-rate hike was driven by new supply hitting the market rather than tenants pulling out of offices.

The new 1.5 million-square-foot BMO Tower by Union Station, for example, was completed with almost half the building still available.

Three other new developments are also still mostly empty. Office buildings at 400 North Aberdeen Street, 1045 West Fulton Street in Fulton Market and 609 West Randolph Street in the West Loop were all completed, adding a total of eight percent more space than was available at the end of 2021.

Google is negotiating a lease for around 200,000 square feet in the Aberdeen building, showing that demand remains strong for the newest developments with rich amenities, but demand remains slack for older buildings in the Loop.

“I can think of four of five [buildings] that have tenants competing for spaces, and on the flip side, there are a lot more buildings that will do anything to attract and retain tenants,” CBRE’s Mark Cassata told Crain’s. “I think as the market continues to develop, the have and have-not [gap] continues to expand.”

Recent trades illustrate the difference. The building at 225 West Washington Street, which is 35 years old and 40 percent vacant, sold for about $83 million in February — less than the $85 million loan the sellers borrowed against the property in 2019. Meanwhile, a partnership between Chicago investor Tim Callahan and New York’s Oak Hill Advisors bought a stake in the 55-story Bank of America Tower completed in 2020 that valued the property at more than $1 billion — the city’s second highest-valuation for an office building behind only Willis Tower.

Leasing activity was far from dormant in the first quarter, though. Online consumer lender Avant doubled its downtown office space with an 80,000-square-foot lease at the Merchandise Mart. And Stripe, a San Francisco-based online payments company, leased 45,000 square feet at 350 North Orleans in an expansion from its office at a River North WeWork co-working spot.

Big sublease offerings hit the market even as demand for new space started to tick up, though. Motorola Solutions listed 54,000 square feet at 500 West Monroe Street on the secondary market, and sports betting company Fubo Gaming, which was already on a sublease, is marketing its 30,000 square feet at 1 North Dearborn Street.

Before the pandemic, the CBD’s vacancy rate was 13.8 percent, and new records were set in four of the past five quarters, Crain’s reported.

[Crain’s] — Sam Lounsberry