Chicago’s downtown office market vacancy rate rose to a record 19.4 percent as concerns grow that the resurging coronavirus could end up pushing it even higher.
Net absorption, a measure of new space occupied versus space being vacated, was minus-1.33 million square feet in the second quarter. The vacancy and net absorption rates are both records in CBRE’s 15 years of tracking the data.
Direct vacancies accounted for 17.7 percent of the total number of empty office space while another 1.7 percent in sublease and new space also was available. Colliers, which uses a different formula, put out a similar report with direct vacancies at 17 percent and sublease vacancies at 3.9 percent for a total of 20.9 percent.
“Chicago’s downtown office market experienced another quarter of deteriorating fundamentals,” according to CBRE. Earlier this year, CBRE predicted Chicago’s vacancy rates could surge to above 20 percent if projects under construction don’t lure new tenants.
That underscores the challenges downtown office landlords are facing as the pandemic has kept their tenants’ employees working remotely. Some are actively seeking to reduce their space.
Much of the rising vacancies have been blamed on two relocations in the past two years – Bank of America and accounting firm RSM. Bank of America moved into the new 110 W. Wacker building, downsizing to 577,754 square feet from 696,404 square feet at 135 S. LaSalle in December. RSM reduced its space too, unloading 5,180 square feet in late 2019 from 1 S. Wacker for 165,000 square feet across the street at 30 W. Wacker.
Making matters worse is the emergence of the Delta strain of COVID-19, which has a number of companies rethinking their post-Labor Day return-to-office plans as well as what kind of hybrid office situation they want to create. Some of those decisions could lead to further cuts to office-space needs.
“Shifting timelines of return-to-work plans will further complicate near-term prospects for the (central business district) office market,” the report said. It won’t help either that 171,900 square-feet of space is already under construction for completion this year, and another 2.56 million square feet Is expected to be ready for office residency next year.
In the Colliers report, the brokerage firm noted there were 40 large blocks of 100,000 square feet or more of contiguous space in 37 buildings. That accounts for 8.1 million square feet of oversized space, the largest of which is the vacated Bank of America space at 135 S. LaSalle. Both 333 W. Wolf Point Plaza, still under construction on the Chicago River, and 200 E. Randolph in the New East neighborhood, have two separate chunks of 100,000-square-foot chunks available.
Colliers has banked its hopes on a “real reset” of workplace needs once businesses return to their offices, but even then has said “a return to market ‘health’ is a long way off.’” In terms of office types, life sciences space is finally beginning to take a meaningful place in the city. The metro area, long a desert for lab space, is set to open nearly 1 million square feet of Class A lab space this year, most of which is in Fulton Market.
Sterling Bay has plans to break ground this fall on a 281,000-square-foot project in Lincoln Yards while independent developer Mark Goodman is looking to build a 500,000 square foot lab and office building in Fulton Market.