Downtown office market’s direct vacancy rate remained just under 20%, while average gross asking rate held at $44 per square foot, according to Bradford Allen

Bradford Allen, a national full-service real estate firm, today released its Q3 2023 Chicago CBD Office Market Report, which showed occupancy levels and gross asking rates holding steady compared to the prior quarter. Driven in part by continued hybrid work schedules, the office market’s direct vacancy rate was 19.8%, up about a half percentage point from Q2, while the average gross asking rate remained at $44 per square foot.

Bright spots in the CBD included Fulton Market, which saw its vacancy rate fall to 16.2% from 18% in the previous quarter. In addition, it was the only submarket that posted positive absorption in Q3, which totaled 150,000 square feet, including 78,000 square feet filled by law firm Greenberg Traurig at 360 N. Green. While major urban centers are facing record levels of distress, Fulton Market has continued to buck the trend, experiencing positive absorption every year since 2016, according to Bradford Allen research.

“CBD employers continue to balance their office space needs with incremental overhead costs, including rent, keeping vacancy high compared to long-term historical averages,” said Neil Bouhan, senior managing director, research and communications, at Bradford Allen. “Yet, as more time passes, data increasingly underscores the value of in-person collaboration, which fosters a sense of community and improves worker engagement and performance. More than half of pre-pandemic office leases in the U.S. have yet to expire, so as companies face the decision to renew, right-size or relocate, productivity concerns may mean employers place a greater emphasis on returning to the office in 2024 and beyond.”

High uncertainty in the market and unfavorable financing conditions continue to moderate leasing activity and have kept investment sales activity at record lows:

• Only 1.7 million square feet of space was leased in Q3. With approximately 5.3 million square feet leased so far in 2023, year-to-date leasing volume is at its lowest level since 2010.
• Despite the slow leasing environment, some companies are solidifying their presence downtown, including international law firm Winston & Strawn, which signed a new lease to occupy 150,000 square feet at the newly renovated 300 N. LaSalle, beginning in 2026. The flight to quality remains prevalent in the market as employees continue to ask for high-quality, well-located, fully amenetized spaces.
• Many investors remain on the sidelines, resulting in only $102 million invested into existing office buildings through September. The only recent year that saw as little transaction volume through the first three quarters is 2009, after the great financial crisis.
• One office property transaction occurred in Q3: the sale of 230 W. Monroe to Oregon-based Menashe Properties. The $45 million purchase, which equates to less than $65 per square foot, marked a significant discount compared to the previous sale price of $122 million, or $173 per square foot, in 2014.
• Even though office property sales have drastically slowed, some owners are still actively marketing their downtown assets for sale, some in hopes of avoiding foreclosure.

Access the full report here: https://www.bradfordallen.com/q3-23-downtown-market-report/.

About Bradford Allen:

Bradford Allen (BA) is a commercial real estate firm based in the heart of downtown Chicago. Founded in 2003 by principals Jeffrey Bernstein and Laurence Elbaum as an office brokerage, the firm has grown into a vertically integrated commercial real estate company, offering a full array of services and expertise across multiple U.S. markets to entrepreneurial, corporate and not-for-profit clients, including strategy, marketing and transaction execution for occupiers, investors and owners. For more information, visit bradfordallen.com.