The Chicago office market closed 2020 with vacancy rates rising and tenants putting off decisions about real estate amid worries about the coronavirus, according to real estate firms’ year-end reports.
The reports paint a picture of a market largely on hold but alert for positive news about vaccines that could boost confidence and ignite pent-up demand. Office rents are just starting to decline, which could help employers downtown and in the suburbs expand during 2021, the reports said.
The firm Cushman & Wakefield said downtown Chicago’s office vacancy rate is 16.4%, a figure that includes subleases. That compares with a rate of 13.8% at the end of 2019. Cushman said the increase was largely due to new space hitting the market and more subleases as firms downsized offices.
Downtown’s subleased space more than doubled during 2020, reaching 3.2 million square feet, the highest amount on record, Cushman reported.
Suburban vacancies rose to 23.8% from 22.3% in the prior year, the company said.
The firm Savills, which represents office tenants in lease negotiations, offered similar conclusions in a report about downtown Chicago that noted leasing activity in 2020 was down 57.5% from 2019 and at the lowest level in recent years. Still, Savills said conditions are ripe for improvement.
“While leasing activity will likely remain slow in the near term as distributed work endures, occupiers in a position to transact for space will have the upper hand and should expect ample options, greater flexibility and aggressive concessions,” its report said.
Savills said companies have exhibited no desire to leave downtown for a lower density locale in the suburbs to deal with the pandemic. Downtown, Savills said, “is positioned to remain desirable for both young workers and corporations to locate.”
How to deal with “distributed work,” better known as working from home, is an issue that puzzles landlords and business owners.
A separate national report Cushman & Wakefield issued Wednesday said office buildings and employers will have to be flexible to accommodate work-from-home arrangements. The report, drawn from a survey of major office owners and users, concluded that most workplaces in the future will offer a hybrid of office-based and work-from-home schedules.
“Employees who want more flexibility will see this as a perk,” the report said.
It added that few employees want 100% remote work, and many fear their careers will suffer if they are seldom seen in the office.
The report was done with George Washington University. It said focus group participants were pleasantly surprised by how much work has been accomplished by a scattered staff, but that many were eager to return to the office.