Downtown office market grew in 2019 despite vacancy rate uptick
Nearly all of the central business district’s 2M sf of new space absorbed was in the booming West Loop, according to MB Real Estate report
UPDATED, 3:08 p.m., Jan. 8: Chicago saw more than 2 million square feet of new space absorbed into the Downtown office market in 2019, about 50 percent higher than the previous year.
The total was also the most since 2007 in the six areas comprising the central business district, according to MB Real Estate’s fourth quarter office market report.
And like last year, the West Loop again accounted for nearly all of that new space — 1.8 million square feet — according to the report.
Two big leases at 601W Companies’ Old Post Office redevelopment were also highlighted: Pepsi’s 190,000 square feet and Cisco Systems’ 135,000 square feet. Also noted was Invenergy’s 100,000-square-foot lease renewal and expansion — also a 601W Companies’ property — at 1 South Wacker Drive.
New inventory continued to take a toll on vacancy rate, which ticked up again in 2019, to 12.8 percent, compared to 12.6 percent in 2018. It has climbed from a recent low of 11.3 percent in 2016, according to the report.
Within the central business district, the East Loop had the highest vacancy rate at 14.5 percent, followed by the West Loop’s 13.7 percent and the Central Loop’s 13.3 percent. The CBD’s six areas are defined as River North, North Michigan Avenue, River West, West Loop, Central Loop and East Loop.
Meanwhile, office landlords in the Central Loop are already trying to prepare for the 2 million square feet of space that’s expected to become vacant in the next three years. That shadow space is opening up as a result of big companies relocating to new office towers in the fast-growing West Loop. It is the largest submarket with the largest blocks of space available for big tenants, said MB Real Estate’s Caitlin Ritter. It also has the newest trophy towers and the most Class A space, she added.
Earlier in 2019, office building trades in the central business district hit a 20-year low, with only seven properties bought and sold in the first two quarters. That was attributed to the city’s upcoming property tax reassessment in 2021, as investors are choosing to wait on the sidelines to see what happens.
But the year did end on an upbeat note for investment sales. In December, Spear Street Capital paid $412 million for a 46-story office tower at 500 West Monroe Street.
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