Office vacancies didn’t get any better last quarter in Chicago last quarter, and the numbers are even worse in the suburbs. So bad, in fact, vacancies have hit an all time high.
Suburban Chicago’s vacancy rate rose to 29 percent from April through June, Crain’s reported, citing data from JLL. That’s up from 28.5 percent the previous quarter and 27.1 percent one year ago. The rate was 22.1 percent at the beginning of 2020, before the pandemic pummeled office landlords across the city and much of the nation.
Net Absorption, which measures the difference between the amount of space occupied and the amount vacated compared to a prior period, also fell by nearly 110,000 square feet in the second quarter.
The remote work movement, fueled by the pandemic, has caused vacancies to skyrocket as the demand for office space has plummeted. While more companies are bringing employees back to the office, the work-from-home trend continues to linger, and other challenges have compounded this issue this year.
A number of companies have significantly downsized their office footprint, whether that be because of massive layoffs or adapting to hybrid work policies. More than 3 million square feet of space has been shedded in the suburbs since 2020, the outlet said.
Plus, high interest rates have created a tight lending climate that has made it difficult for landlords to refinance their assets and make necessary renovations to compete with Class A office buildings.
The array of challenges working against Chicagoland’s office sector led to an even bigger problem to emerge last quarter: distress. As a slew of loan maturities came due, landlords were forced to sell their properties at a loss, hand the keys back to their lender or face foreclosure litigations.
A venture of Lincoln Property Company, for example, was hit with a foreclosure lawsuit last month after failing to pay off its nearly $80 million loan on the Central Park of Lisle office complex.
Some office landlords are pursuing redevelopment projects, like Dermody Properties in Glenview and Bridge Industrial in Deerfield. Such conversions, whether it’s residential or industrial, could lower vacancy rates in future quarters, as too much supply is a main contributor to the high rates.
—Quinn Donoghue
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