The Downtown Chicago office market limped into the new year, with the fourth quarter vacancy rate pushing past 14 percent and sublease availability hitting a 12-year high.
MB Real Estate’s quarterly report was grim but not surprising. Chicago endured a battering 2020, as the coronavirus pandemic emptied out offices across the city and prompted companies to exit leases, trim space or cancel pending deals. Dozens of firms marketed office space for sublease throughout the year, including in hot neighborhoods like Fulton Market.
Office vacancy rate climbed to 14.2 percent in the central business district, from the 12.8 percent it recorded over the same time last year. The 148.2 million square feet of total inventory was up from 142.9 million in Q4 2019. But more space created more problems for landlords.
According to MB Real Estate’s report, sublease availability skyrocketed from October through December. In the central business district, there was 5.4 million square feet of vacant space, a 93 percent year-over-year jump from the previous 2.8 million square feet. It represented the most amount of available sublease space since the Great Recession.
One major office investment deal that did close in Q4 was also the year’s biggest. Normandy Properties paid $412 million for Sterling Bay and JPMorgan’s 110 North Carpenter Street building in Fulton Market, which is McDonald’s headquarters. MB Real Estate noted that Q4’s biggest new lease went to flex-office provider Industrious and its 52,000 square feet at Blackstone Group’s Willis Tower. But that, too, came with a caveat. A representative for Industrious said it was not a traditional lease, but a revenue-sharing agreement with Blackstone.
Chicago’s CBD office market ended the year “in a precarious position, with a historic amount of available sublease space and extremely limited leasing and investment activity,” according to the report.
On the brighter side, there was 855,000 square feet of positive absorption from tenants moving into new developments. But beware the storm clouds: MB Real Estate said the market will likely see significant negative absorption in 2021 as tenants “vacate their existing spaces.”
As for the suburban office market, it did not fare as badly, though it did see a drop-off in leasing and investment activity. There was no sustained surge of activity like the kind the suburban housing market enjoyed.
In the fourth quarter, suburban office market vacancy rate increased to 24.2 percent and it had 550,000 square feet of negative absorption.