Bradford Allen, a national full-service real estate firm, today released its “Mid-Year 2024 Office Market Report: Suburban Chicago” and “Q2/24 Office Market Report: Downtown Chicago” research reports. Among other findings, the firm noted the suburban Chicago office vacancy rate was 24% in the first half of the year, down from 28.3% at the end of 2023, and gross asking rents were largely unchanged at about $27 per square foot. Meanwhile, the downtown office vacancy rate ticked up to 22% in the second quarter from 21% in the first quarter, and gross asking rents were $42.81 per square foot, down slightly from $43.44 last quarter.
Throughout the metro, tenants continued to show a preference for move-in-ready suites and properties whose owners demonstrated long-term financial commitment through reinvestment.
“In this environment, successful owners tend to be those with the ability and willingness to reinvest in properties—often in the form of spec suites, amenity upgrades and tenant improvement allowances,” said Neil Bouhan, senior managing director, research and communications, Bradford Allen. “Consequently, investors who can acquire assets at a low enough basis will likely have the capital flexibility to make attractive leasing deals.”
As an example of a reinvestment in downtown Chicago, the owner of One Prudential Plaza reportedly committed approximately $50 million to the property and recently received a two-year loan extension. The property is now 87% leased, including the 13-year, 25,000-square-foot lease executed with architecture firm HOK in May.
In addition, the city is creating incentives for developers to repurpose office product, recently announcing it will move forward with the LaSalle Corridor Revitalization program and committing $150 million in TIF funds to redevelop four office properties into mixed-income housing, hotel rooms and retail.
Downtown Chicago
While still far from pre-pandemic levels, office sales activity in Chicago’s CBD ticked up in the second quarter, with five properties totaling $156 million trading hands. In all, sales totaled $255 million in the first half of 2024, well above the $56 million sold through the first half of 2023 but still far below the $1.6 billion first-half average for 2015-2019. The largest sale in the second quarter—and over the past two years—was Beacon Capital Partners’ purchase of 333 W. Wacker Drive, a 36-story tower in the West Loop, for $125 million, a significant discount from its previous purchase price of $320 million in 2015.
Other highlights from the report include:
- 1.5 million square feet was leased in Chicago’s CBD in the second quarter, for a total 3.1 million square feet in the first half of the year, down from 3.6 million in first-half 2023 and 7.2 million in first-half 2019.
- Despite that, some tenants are expanding their presence in Chicago’s CBD, particularly law and other professional service firms that are requiring more in-office time.
- Fulton Market again posted positive absorption, at nearly 200,000 square feet, continuing its run of positive absorption every year since 2016.
Suburban Chicago
In Chicago’s suburbs, reinvestment is helping to turn around properties that struggled after the pandemic. For example, after 6133 N. River Road in Rosemont, near O’Hare International Airport, went into foreclosure last year, receivers proceeded with a multimillion-dollar capital improvement plan and recently secured a 53,000-square-foot lease with Littelfuse.
Suburban office sales totaled $114 million in the first half of the year, down from the $133 million traded in the year-earlier period and $163 million in first-half 2019. With $1.5 billion in suburban office debt set to mature in the next two years, the market is likely to see more distress and discounted sales.
Other highlights include:
- Leasing velocity in the suburbs slowed in first-half 2024, with transactions totaling 2.5 million square feet, compared with 3.1 million a year earlier and 3.4 million in first-half 2019.
- Despite a 24% vacancy rate and negative 814,000 square feet of absorption through June, the suburban Chicago office market is more competitive than the numbers suggest, according to Bradford Allen. The firm’s most recent Office Pulse showed nearly 75% of vacant space is concentrated in approximately 20% of suburban properties. If these largely vacant buildings are removed from the data, the remaining 80% of suburban assets—most of which are actively being marketed—have an average 10% vacancy rate.
- Investors continued to find office conversion opportunities, after more than half of the suburban office sales in 2023 were for redevelopment into industrial, data center and multifamily uses. The suburbs saw more than four times the sales volume of Chicago’s CBD last year despite having 40% less inventory.
See the reports here:
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.