Downtown Chicago has wrapped up its busiest quarter for office leasing since 2016, trimming vacancy rates ahead of an expected surge in new space, the real-estate firm CBRE Group Inc. reported in a market survey.
The report found that the central business core, covering the Loop and areas immediately north and west of it, saw net leasing activity of nearly 460,000 square feet during the quarter, the highest total since the third quarter of 2016. CBRE said some of the largest deals came from providers of shared office space, as well as technology companies.
“Over the last two or three quarters, the velocity of deals has only accelerated,” said Kyle Kamin, executive vice president of CBRE. He said the market appears poised to absorb the impact of added space due to hit the market, such as the 2.7 million square feet at the Old Post Office, 433 W. Van Buren.
The overall vacancy rate in the Chicago office market is 12 percent, down from 12.3 percent at the end of 2018, CBRE said.
The downside for companies that need space is that rents continue rising. CBRE said average asking rents in the downtown market now exceed $40 per square foot. “It’s becoming harder to find deals out there,” Kamin said. “Even buildings that have underperformed in this market have been able to raise their rates.”
The dynamic has helped the suburban office market, which for years has labored under higher vacancy rates compared with downtown. A separate CBRE report said suburban markets had 68,000 square feet in net leasing activity during the first quarter, and that the average vacancy rate of 17.9 percent was virtually steady.
The average asking rent is rising in the suburbs, especially for so-called Class A buildings that tend to be the newest and with the freshest amenities. CBRE said average rents for those buildings jumped 54 cents to $29.33 per square foot quarter-over-quarter.
The firm’s leasing figure is a net absorption rate, which measures the volume of new office occupancies minus any empty space hitting the market.
Providers of shared office space generated some of the largest downtown deals in the first quarter. CBRE said Convene moved into 105,000 square feet at 311 W. Monroe and 50,000 square feet at 131 S. Dearborn. The firm Industrious occupied 52,000 square feet at 231 S. La Salle.
Kamin said the growth of such co-working options bears watching. “To the landlord, it’s leased space, but the tenant has to go out and find the users,” he said.
CBRE said the central area has more than 132 million square feet of rentable space, with 4.3 million square feet under construction.