Downtown office market ends decade on highs: report
Led by success of the Old Post Office, Chicago’s downtown office market registered decade highs in leasing and new construction during 2019, said a report from the real estate brokerage Cushman & Wakefield.
Cushman said the downtown market saw leasing deals covering 10.4 million square feet and construction deliveries of 2.6 million square feet during the year. Both statistics were their highest for the decade. The activity pushed average asking rents over the $40-per-square-foot mark, to $40.70, 3.4% more than a year ago, the report said.
Downtown office vacancy rates rose by a tenth of a percentage point to 14.1% in 2019, compared with 2018, but only because the massive Old Post Office development opened for business, Cushman said. Its analysts said downtown vacancy rates should dip in 2020 and 2021 as new tenants such as Uber and PepsiCo occupy the refurbished space.
Demand was weaker in the suburbs, but experts noted that the most modern buildings in “inner-ring” towns commanded sharply higher rents. Overall, the suburban vacancy rate stands at 23%, vs. 23.5% at yearend 2018, and the average asking rent was $24.16 per square foot, up 4.2% from a year ago, Cushman reported.
Commenting on the downtown market, Cushman Executive Director Scott Shelbourne said, “Recruitment and retention of employees continues to be one of the main drivers for the move to new and redeveloped buildings, such as 110 N. Wacker and the Old Post Office. The requirements of many tenants today cannot be accommodated by a portion of existing assets, so those tenants have been moving to buildings that are keeping up with the new tenant demands, such as efficient floor plates, access to natural light and hospitality-quality amenities.”
Overall leasing activity in the suburbs fell 8.5% from 2018. But Jordan Rovito, senior director at Cushman, observed an increase in office leasing and investment in DuPage County’s East-West Corridor, plus a demand for modern space, known as Class A buildings in the industry’s lingo.
“With plenty of square footage available, we’re seeing a recommitment from employers, including those that considered a move downtown but opted to remain in the suburbs due to the affordability and proximity to their existing workforce. This bodes well for the market going into 2020,” Rovito said.