The winners and losers of Chicago’s real estate market for 2021 were clear.
Landlords in downtown Chicago, home to the nation’s second-largest central business district, were hit the hardest by the pandemic downturn as the office vacancy rate surged above 20 percent in 2021. While leasing activity picked up later in the year with companies preparing to bring employees back, recovery to pre-pandemic levels is still a long way off.
Developers in Fulton Market, a hip corporate and entertainment area, were among the winners, with companies signing leases at new Class A buildings with top-tier amenities. Realtors had a busy year selling more homes than last year, fueled by a combination of low interest rates, gains in the stock market and people looking for larger dwellings as remote work became the norm. Landlords and developers of big-box warehouses had their best year, with both rent and projects in the pipeline soaring to a record.
Here are some of the top real estate stories The Real Deal covered in 2021.
Slow burn for downtown office buildings
The biggest downtown office default came from the 915,000-square-foot Civic Opera House at 20 North Wacker Drive. After failing to make monthly loan payments since May, New York investment firm 601W was hit with a $195 million foreclosure suit in October.
For some investors, the answer was to sell, or try to sell, their buildings. Local investment firm Kinship Capital’s 28-floor building at 225 West Washington hit the market with no asking price in October. Kinship listed the property for about $120 million three years ago, but bids were expected at $95 million reflecting the pandemic-battered downtown office market.
“It’s a slow burn when it comes to the office market,” Laura Dietzel, real estate senior analyst at RSM said for a Real Deal feature on the trend published in December.
About 10 percent of commercial mortgage-backed securities on properties are delinquent or in special servicing, a step toward resolving a debt, often by a sale. That ranks Chicago the city with the sixth-most distressed office buildings, behind St. Louis, Hartford, Cleveland, Houston and Orlando.
The hardest hit in downtown have been hotels as business travel remains mired at a fraction of pre-pandemic levels. Kimpton Hotel Monaco was sold for just $36 million, 35 percent less than its appraised value when it last sold in 2013.
Chicago also ranked sixth in the national list of distressed hotels that are at least 30 days delinquent or in special servicing.
Chicago’s most promising district: Fulton Market
The priciest office deal was in Fulton Market, with the sale in June of Google’s Midwest headquarters for $355 million, 20 percent over what ARA paid Sterling Bay for the 10-story building in 2016.
Demand remained strong in Fulton Market even as all the new development there kept vacancy rates relatively high. Germany’s Deka Immobilien bought a fully leased 206,000-square-foot building, home to Google Cloud, at 210 North Carpenter for $169 million in September, marking the second-priciest office sale last year.
Developers and tenants in Fulton Market started thinking small when companies increasingly opted for broad, open floor plans.
Sterling Bay, for example, revised plans for its Fulton Market office building at 360 North Green Street in October to make it narrower, but also nine floors taller.
With active office development came residential projects from big name developers. LG Development proposed a 665-unit apartment building across two towers at 1143 and 1150 West Lake Streets. Sterling Bay submitted plans for its first residential project of 282 apartment units at 160 North Morgan.
Tale of two cities
The number of homes realtors sold last year rose 16 percent to 127,317 from January through November from the previous year, according to the Illinois Association of Realtors. High demand led to bidding wars and helped push up the median price to $300,000 last year, up 12 percent from 2020.
It was a record year for luxury homes as well. Some 100 homes sold for $4 million or more in 2021, double the average of 51.5 over the past six years.
While 2021 was a good one for realtors and the super rich, it wasn’t so good for low- and medium-income first-time home buyers. Chicago’s most affordable suburbs – Chicago Heights, Park Forest and Hazel Crest, saw the biggest price gains in 2021. Bidding wars priced out first-time buyers, leaving them in the rental market.
It was a banner year for Chicago’s already-strong industrial market. The increased need for last-mile warehouses and distribution centers pushed asking rents to an all-time high of $5.90 per square foot in the fourth quarter of 2021. Active leasing drove down vacancy rates to 8 percent during that period, below the pre-pandemic level of 8.6 percent.
The largest deal came from Wayfair, which signed on a 1.2 million-square-foot space in Romeoville, and Amazon’s 1.16 million-square foot lease in Huntley.
Other notable deals included Electric bus company Lion Electric’s commitment to over 900,000 square feet in Joliet and Tesla’s smaller 309,000-square-foot lease in Lockport, a signal that electric vehicle manufacturers are securing sites in the Chicago metropolitan area.
On top of the millions of square feet of space leased last year, build-to-suit developments were popular as competition for big box warehouses grew. Amazon, which more than doubled its industrial space in the nation during the pandemic, opened two five-story fulfillment centers in suburban Markham and Matteson that each contain 3.6 million square feet, ranking top two deliveries for 2021. To meet growing demand, about 28.5 million square feet were in the pipelines, the most in 25 years.