At a glance…

• Chicago office vacancy remains above ‘equilibrium’ by four points (14.4%), yet virtually unchanged from the previous quarter.
• Rental rates continue to soften, slipping to $28.30 per rentable square foot (rsf), a decrease from last quarter’s $29.25.
• Landlords continue to be aggressive in negotiating to retain existing tenants.
• The bulk of market activity involves flight to quality in the leasing market with tenants taking advantage of historically low pricing.
• Office space absorption figures suggest a slight increase in overall demand and leasing activity. Absorption is positive 80,622 rsf for the quarter, compared to the previous quarter of negative 27,582 rsf.
• Sublease vacancy decreased to 2,511,330 available rsf from 2,658,482 available rsf
• Many companies have excess, underutilized space.  The bulk of this ‘shadow space’ must be absorbed before a healthy market returns

Issues impacting Chicago office space, and many other markets, include: high unemployment, housing foreclosures and weak pricing, stagnant economic growth and diminished financial reserves of the small business.

We expect the recovery to move slowly for commercial office space in Chicago.

Major transactions this quarter:

• Groupon at 303 E Wacker (150,000 rsf short term sublease expansion)
• PNC Bank at 1N Franklin (116,000 rsf renewal/expansion)
• University Health Consortium at 155 N Wacker Drive (Relocation to 56,290 rsf)
• Crain’s Communications at 150 N Michigan Avenue (Relocation to 54,425 rsf)

New construction may be coming:

A new, 1 million rsf office tower may be coming to the downtown market in 2014.  In November 2010, Trammell Crow and Insite Real Estate announced their plans to construct the tower at 301 S Wacker Drive.  Alter Group and White Parks Realty are  also eyeing 625 W Adams as a site for a 490,000 rsf office tower.  Finally, Fifield and CBRE are alleged to be planning a 350,000 to 425,000 rsf office tower at 601 W Monroe.

Where is the opportunity?

There is a lack of A+ prime -view, high-rise space. What little there is will not be discounted as much as  tenants would like to see.  However, great opportunities continue to exist in the B and B+ building segment. Landlords under pressure are looking to minimize the negative market forces by packaging creative deal structures.

It’s a great time to be a tenant in the market. Don’t be one without excellent representation.