Chicago’s office market rebound is “long way off”
Vacancy rate hit 15-year high in Q1 and months ahead look bleak, report shows
Chicago’s Downtown office vacancy climbed to a 15-year high in the first quarter, and it may keep rising for the rest of the year.
The 16.1 percent vacancy from January through March was also a percentage point higher than the previous quarter and three percentage points above the first quarter of 2020, according to the latest report from Colliers International. It also noted that total office availability hit 22.3 percent last quarter, blowing past the 16.8 percent availability rate at the start of 2020.
“A real reset will begin once businesses return to their office spaces and reassess workplace needs,” according to the report. But that may not happen anytime soon. “Although there is some optimism in the market with a slight uptick in activity compared to last quarter, a return to market ‘health’ is a long way off.”
The local market has been in freefall for much of the pandemic, with companies downsizing, canceling planned deals or exiting leases entirely.
New developments are also being reassessed or killed. In the latest example, Nexstar Media Group and Riverside Investment & Development scrapped plans for a 1.2 million-square-foot office and residential complex across from Goose Island.
The report notes that some office activity may pick up in the summer. But the “post-pandemic pause” on overall demand and activity, it said, “will likely continue with a much slower recovery than what we’ve seen in past recessions.” Because of the high vacancy rates, landlords are “highly motivated in this soft market to offer creative lease deal incentives” for tenants, Colliers said.
Sublease availability stood at just under 6 million square feet last quarter, about 2.5 million square feet more than Q1 2020. In a sliver of good news, TikTok was nearing a deal to sublease 30,000 square feet from WPP Group at Sterling Bay’s 333 N. Green Street, according to Crain’s.
But the market itself has drastically powered down over the last year. While there was still 3.9 million square feet of new space under construction from January through March, that was far below the 5.3 million square feet from the same time last year, the report found.