Downtown office leasing hits a decade high, report finds

Buoyed by interest in the Old Post Office and other buildings in the West Loop and Near West Side, downtown office leasing reached a decade high during the first nine months of 2019, according to a report issued Monday by Cushman & Wakefield.

The real estate firm said downtown leasing transactions totaled 7.8 million square feet for the year through Sept. 30, up 7.4% from the same period last year. The activity reduced the vacancy rate for downtown offices to 13.1% from 14.2% for the third quarter last year.

In the suburbs, leasing was far more subdued. The Cushman report said the vacancy rate fell almost two percentage points, to 22.8%, but that was because of space becoming unavailable due to renovations or redevelopment. Through Sept. 30, the year’s suburban leases totaled 3 million square feet, a 9% decline from the same period a year ago.

Throughout the region, activity was concentrated in what the industry calls Class A buildings, which generally have the most modern amenities and freshest design, and are the most expensive to rent. Cushman said average rents were up 2.5% in the city and suburbs compared with a year ago, with the averages at $40.32 per foot downtown and $23.85 per foot in the suburbs.

“Companies want to be in Class A buildings to attract best-in-class talent in today’s tight labor market,” said Steven Bauer, executive director of Cushman’s downtown leasing team. “While new construction is adding supply, it’s also leasing up quickly, so development of Class A space is expected to continue.”

The suburbs, meanwhile, are a “tale of two markets,” said Sean Kropke, executive director of the firm’s suburban team. “Class A properties in inner-ring suburbs continued to dramatically outperform, with lower vacancy and higher rents,” he said. “We predict this gap will continue to widen as owners of well-located assets continue to undertake capital improvement projects to increase marketability.”

The report said the West Loop has been the most active part of the downtown market, while the far smaller Fulton Market area has recorded the largest percentage increase in leasing—72.5% compared with the first nine months of 2018.

Major downtown deals in the third quarter included Uber leasing 450,000 square feet at the Old Post Office, 433 W. Van Buren. Other leases in the same location were Cboe Global Markets and the Federal Home Loan Bank of Chicago. Elsewhere in the West Loop, Accenture expanded at 500 W. Madison, where it now occupies 226,000 square feet, Cushman said.

The largest Fulton Market lease in the third quarter was WeWork taking 88,000 square feet at 1155 W. Fulton. Landlords are watching the provider of shared office space to see if its escalating financial problems will cause it to slow its expansion or retrench here. A company spokesman said Monday it will keep expanding but expects the pace to slow.

The quarter’s biggest suburban lease was Centene taking 90,000 square feet at 1333 Burr Ridge Parkway, Burr Ridge.