But Fulton Market’s vacancy rate again decreases, and suburban rents hold steady as leasing velocity increases

Bradford Allen, a national full-service real estate firm, today released its Q4 2023 Chicago Office Market Report showing that CBD rents declined to $43 per square foot in fourth-quarter 2023, down from $44 per square foot in the preceding quarter and reflecting the challenges facing building owners even as return-to-office numbers gradually improve.

With CBD vacancy surpassing 20% and negative 530,000 square feet of net absorption last quarter, landlords are offering sizable concession packages, flexible lease terms and lower rental rates, according to the report. Some submarkets continue to prove more resilient, including Fulton Market, where vacancy declined to 15.4%, compared with 16.2% in the third quarter. It was also one of two submarkets to post positive net absorption (70,000 square feet), maintaining a trend of positive performance that dates back to 2016.

Meanwhile, the Year-End 2023 Suburban Chicago Office Market Report showed the suburban office vacancy rate reached 28.3% last year, with negative 930,000 square feet of net absorption. Yet leasing velocity increased to pre-pandemic levels, helping suburban rents hold steady at $27 per square foot.

“As the CBD office market continues adjusting to these lower occupancy levels, landlords are competing for tenants amid historically high sublease space available and evolving preferences for smaller-footprint spaces,” said Neil Bouhan, senior managing director, research and communications, for Bradford Allen. “Still, new lease signings – and even the almost imperceptible investment sales activity – remind us there are deals getting done and the market that was in search of a bottom may have found it.”

Among the new lease signings, Invenergy nearly doubled its existing footprint at 1 S. Wacker in the West Loop, now occupying a total of 180,000 square feet.

In the suburbs, 2023’s largest lease was signed in October by the Federal Aviation Administration, which took more than 108,000 square feet at 9600 W. Bryn Mawr Ave. in the O’Hare submarket. The move, however, reflected a 42% reduction of the FAA’s existing footprint at 2300 E. Devon Ave. in Des Plaines. Even as some downsize their footprints, companies leased more than 5.2 million square feet of office space in the suburbs in 2023, above the 4.8 million square feet leased in 2019.

Other highlights of the Bradford Allen reports include:

• Leasing velocity in the CBD stayed below pre-pandemic levels at 7.4 million square feet leased through 2023 – over 1 million square feet less than the 8.5 million square feet leased in 2022.
• In the CBD, only $139 million transacted in 2023, significantly below the previous year’s level of $1.3 billion. From 2015 to 2019, transaction volume averaged $3.3 billion annually.
• Investment sales volume in the Chicagoland suburbs declined in 2023, with just $520 million trading hands, well below the $1.1 billion transacted in 2022. About half of the 2023 activity was driven by developers seeking candidates for teardowns and conversions, with data centers being the most common alternative use.
• Owners continue to market their properties in order to avoid foreclosure. However, in both the city and suburbs, foreclosures are increasingly commonplace as it becomes difficult to compete for tenants with sizable concession packages and lower rental rates on the market.

The full reports, which include submarket overviews, can be accessed at the following links: CBD | Suburban

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.