Fulton Market has the highest office vacancy rate in Chicago. Developers don’t care

UPDATED, Aug. 26, 2021, 12:33 p.m.: Fulton Market has been a magnet for Chicago’s spec office developers and tenants, but the trendy district hasn’t been immune to the ravages of the pandemic.

It now has the highest vacancy and availability rates in the city.

With nearly 9.5 million square feet of office space, Fulton Market’s availability rate has climbed to 39 percent, according to NAI Hiffman’s second quarter report. The figure — which includes vacancies and sublease space — surpasses the downtown average of 24 percent, and River North’s 27 percent.

Class A space in Fulton Market — the dominant office type that includes glittering spec projects from some of the city’s biggest developers — was even worse: It logged a 54 percent availability rate from April through June, according to the report.

And at 28.6 percent, its vacancy rate also eclipses Downtown’s 19.4 percent, which is a record-high.

Over the last 18 months, dozens of firms marketed office space for sublease across the city. Fulton Market was no exception, though developers there haven’t been scared off.

The district’s high Q2 availability rate can be attributed in part to the glut of new deliveries coming online, said NAI’s Michael Morrone, who authored the report. And there’s more to come. The district has another 924,000 square feet of spec office space under construction, the report noted.

“The vacancy and availability rates are higher, but Fulton Market has a big enough runway that it’s going to come back” quicker than other areas in the city, Morrone said. “With spec office space in Fulton Market, everyone wants to get in on a good thing.” He cited Sterling Bay’s early success with Google.

And while the pandemic has emptied out offices in Fulton Market, it hasn’t disabled investment sales. The tech giant’s Midwest headquarters, which Sterling Bay developed and sold to American Realty Advisors in 2016, sold in June at a 20 percent premium.

Tenants are signing leases again in the district, with recent deals involving Kimberly-Clark, TikToc, Calamos Investments and the restaurant reservation site Tock.

While those have not markedly improved the overall vacancy rate — and despite Covid and the Delta variant and the future of the office market — developers appear unperturbed. Trammell Crow chose to make its life sciences bet in Fulton Market. Its two-building, 750,000 square foot Fulton Labs development broke ground last summer at 1375 W. Fulton. Mark Goodman & Associates is also planning a major life sciences development in the district.

Tishman Speyer is building a spec 270,000-square-foot office development, which it secured financing for before the pandemic.

Sterling Bay also put shovel into dirt earlier this month, on a 200,000-square-foot development at 345 N. Morgan St. The project was supposed to start last year, part of Google’s expansion in the city. But the construction halted and Google pulled out.

Even without its golden goose, Sterling Bay secured $100 million in financing from Bank OZK this summer and went ahead with construction.