More than one fifth of the office space in downtown Chicago remains available as companies try to figure out their work-from-home policies.
Office space availability dropped to 22.4 percent in the third quarter this year from 31.2 percent in the second quarter, according to a Savills report. The latest figure is higher than the 18.6 percent rate in the third quarter of 2020.
Firms in Chicago signed leases for 2.2 million square feet of space in the third quarter, the most since the pandemic.
“I would characterize it as tenant musical chairs,” said Eric Feinberg, vice chairman and co-head for the Chicago region at Savills. “When you are moving from one building to another, you’re not changing availability that much. It’s not like pre-pandemic where you’re having organic expansion of jobs or industry in Chicago.”
Quarterly leasing was led by Kirkland & Ellis’s signing of 600,000 square feet at the Salesforce Tower, relocating from the 500,000 square feet office space at 300 North LaSalle Drive. Kraft Heinze also renewed its 162,000 square feet at Aon Center.
Savills’ Feinberg also attributed the high vacancy rate to offices trying to figure out work-from-home arrangements as uncertainty still lingers over the coronavirus.
“There hasn’t been complete certainty as to what those policies are going to be. There is definitely uncertainty around what those are and how those [work-from-home policies] are going to affect leasing decisions going forward,” said Feinberg.
Overall gross asking rents nevertheless ticked upward, increasing 0.7 percent to $40.70 per square foot this quarter. Asking rents for Class A properties drove up the overall market, with Class A building rents increasing by 1.2 percent to $46.63 per square foot. Tenant demand for amenities and upgraded building facilities at Class A properties remain high while effective rents declined precipitously in Class B buildings.
North Michigan Avenue had the lowest vacancy rate of 15.9 percent in the quarter while the Far West Loop and Fulton Market had the highest, at 25.5 percent. Savills attributed the high rate at the West Loop and Fulton Market to new developments.