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Chicago’s central business district had a catastrophic year in 2021, buckling under the pandemic strains that had already devastated the suburban office market the year before.
Chicago Central Business District
The office vacancy rate in downtown Chicago increased by almost 24 percent between the end of 2020 and the end of last year, hitting a record 20.3 percent in the fourth quarter, according to figures from Cushman & Wakefield.
The vacancy rate in the suburban office market rose over the same period as well, but by less than 6 percent. That comparatively hopeful figure, however, is an artifact of just how bad things already were in the suburbs at the end of 2020, when the vacancy rate was already almost 24 percent.
Downtown Chicago is in the throes of an unprecedented office glut. Net absorption crashed last year by a stunning 505.69 percent — from a merely dismal -809,000 square feet to a positively abysmal -4.5 million.
Suburban office parks again fared better in 2021. Net absorption — which ended 2020 worse off than the city center, at -1.6 million square feet — getting “only” 68.75 percent worse during 2021, ending with a figure of -2.7 million that would seem a far-off dream to landlords in the central business district.
Central Business District Leases
Some signs of green shoots have appeared. Chicago’s downtown office market had 2.7 million square feet of new leases in the final quarter of 2021, up 3.6 percent from the third quarter and the highest since the start of the pandemic, according to Savills.
Still, some developers are betting that warehouses will be more valuable than office space. Chicago leads the nation in buying suburban office buildings to convert them into industrial facilities. About 3 million square feet of office space around Chicago has already been converted in the past three years, according to Newmark, beating out the 2.1 million in the Los Angeles area, which has the next highest total.
And there’s more in the pipeline. Allstate recently sold its 1.9 million-square-foot headquarters in suburban Northbrook to Nevada-based Dermody Properties, which plans to build warehouses on the property.