Downtown Chicago Office Market Still Painful

Chicago’s downtown office market continues to grapple with record-high vacancy, entering its third year of distress despite a recent slowdown in office space downsizing.

The vacancy rate in downtown Chicago held steady at 25.8 percent in the third quarter, up from 23.7 percent a year ago and a significant jump from the 13.8 percent at the start of the pandemic, Crain’s reported, citing data from CBRE.

The persistence of high vacancy over the past 11 quarters has become a major headache for landlords in the central business district. As companies slashed their office footprints, property owners have dealt with declining property values, foreclosures and distressed assets.

With most companies still reducing their office space by 15 percent to 25 percent, CBRE Senior Vice President Tony Coglianese forecasts more downside risk for many downtown landlords.

“We still have some [vacancy rate] basis points to go on the way up,” Coglianese said.

While the third quarter wasn’t as harsh as the preceding 12 months in terms of office demand, net absorption — the amount of office space leased or occupied minus vacancies — still recorded a decline of 78,000 square feet. This represents a slowdown compared to the 1.7 million square feet of negative net absorption between mid-2023 and mid-2024.

Helping soften the blow were new leases such as the Chicago Office of Inspector General’s 50,000 square feet at 231 South LaSalle Street and MonoSol’s 34,800-square-foot lease at 1375 West Fulton Street.

However, these gains were offset by significant losses, including the departure of advertising giant Interpublic Group from 140,000 square feet at 875 North Michigan Avenue. The firm moved to just over half that space in the Merchandise Mart, highlighting the trend of downsizing even for major office tenants.

The Class A office market, consisting of newer and more modern buildings, has fared better, with a vacancy rate of 20.5 percent. In contrast, Class B buildings, which tend to be older and less equipped with modern amenities, are struggling with a vacancy rate of 31.1 percent.

Coglianese noted that some Class B buildings, such as 230 West Monroe Street and the Chicago Board of Trade Building are gaining attention due to reduced rents and reinvestment efforts, particularly as Google prepares to move into the redeveloped James R. Thompson Center.

— Andrew Terrell