Can Government’s Return to Office Save Chicago Real Estate?

The push to get public employees back to offices in Chicago is being led by the private sector — and landlords anxious to resuscitate the streets of the Loop aren’t getting much help from City Hall.

The Building Owners and Managers Association of Chicago is lobbying Mayor Brandon Johnson to take a clearer stance on the subject and the Chicago Loop Alliance is leading by example, having called its staff back to the office five days a week at the start of the year.

But there isn’t much political pressure being levied at City Hall, as downtown aldermen are staying quiet for now. Aldermen who represent the Loop — the 42nd Ward’s Brendan Reilly and Lamont Robinson of the 4th Ward — didn’t respond to requests for comment. Alderman Bill Conway, who also represents part of the Loop, declined to comment.

That leaves the industry on its own, with Farzin Parang, head of BOMA in Chicago, trying to rally allies by tying the cause to other concerns of the mayor’s constituents. Elsewhere, mayors are taking the lead on the issue. Most recently, San Francisco Mayor Daniel Lurie ordered city desk workers to return to the office at least four days per week by April 28.

“We urge the mayor to promote a downtown return across all sectors and support policies that boost office occupancy, including reducing the reliance on property tax and improving public transit,” Parang said.

The impact of any additional in-office days for government workers could be significant. The City of Chicago alone employs about 10,000 people at offices, with many located in the Loop. Cook County has another 9,000 or so desk employees in the city, and the State of Illinois accounts for thousands more.

Expecting office occupancy to reach pre-pandemic levels in any city is a stretch, but an influx of thousands of more workers on any given day could have a ripple effect on struggling retailers and support multifamily development, industry insiders say.

A concerted effort by public sector leadership would supplement the private sector’s push, which has notched some gains for the area but leaves plenty of room for improvement, said John Vance of Chicago retail brokerage Stone Real Estate Corp.

“It would be unfair and wrong to blame the struggles of the Loop on just city of Chicago employees or state of Illinois employees who work in Chicago,” he said. “But they are working for an employer who has a vested interest in making sure that the city of Chicago, and therefore the state of Illinois, does well.”

Where RTO policies stand now

Office policies across all levels of government in Chicago vary and can be subject to any of the dozens of union contracts dictating certain terms for employers. Representatives of the city of Chicago and the state of Illinois did not respond to repeated requests for comment about work-from-home policies.

A representative of Cook County said all county employees must work in office at least three days per week. Employees can, however, request exceptions to the schedule from the human resources chief. The county didn’t return a request for the number of exemptions granted.

As of January, government office use in Chicago is at 73 percent of pre-pandemic levels according to an Avison Young analysis.

With over 48,000 employees, the federal government is the largest employer in the city of Chicago. But tracking various agencies’ office policies is complicated by the current presidential administration’s expansive effort to lay off workers and cut office space by as much as 50 percent.

“These reductions, including the recent planned disposal of the SEC lease at 175 West Jackson Boulevard, could mean a busier government footprint in Chicago, but also a smaller one,” Avison analyst Sean Boyd said.

The LaSalle-Wacker corridor, a retail submarket that includes many government buildings and law firms, is one of the lowest performing in the Loop with a 36 percent retail vacancy rate in 2024, Stone Real Estate found.

“[Retailers] need the streets to have a vibrancy and energy and people feeling good because there is a healthy buzz that people create when they are physically here,” Stone Real Estate’s Vance said.

Other areas of the Loop bordering the West Loop and River North have had a faster recovery.

“Chicago is recovering very unevenly, and if a segment of office that is concentrated recovers dramatically, it’s going to have a huge immediate impact on that submarket,” said Greg Kirsch, founder of retail brokerage Kirsch Agency.

Seeking other solutions

Multifamily development also plays a key role in the Loop’s recovery.

Increasing its full-time residents will improve retail traffic on evenings and weekends, create easier commutes for some workers and diversify the tax base, said Rob Karr, CEO of the Illinois Retail Merchants Association.

Karr’s organization isn’t fully on board with requiring in-office schedules; Stone Real Estate recently studied three boutique retail corridors through North Side neighborhoods that are flourishing, with little to no vacancy on stretches of Damen, Southport and Armitage avenues.

“While it’s important we find ways to bring shoppers and workers back downtown throughout the week, we don’t support in-office mandates as no one approach fits the needs of all employers and employees,” Karr said. “It will take collaboration between the business community and policymakers to find creative ways to make downtown a destination once again.”

A transformation is already underway. Between 2000 and 2022, the Loop’s population grew by 154 percent, according to the Chicago Metropolitan Agency for Planning. Meanwhile, the total population of Chicago declined by 6 percent during the same time period.

If the city’s plan to subsidize office-to-multifamily conversions on LaSalle Street succeeds, it will add to the Loop’s residential growth trajectory; developer Mike Reschke on Wednesday won Chicago City Council approval for the conversion of five floors of vacant former office space at 208 South LaSalle into 168 apartments with up to $26 million in tax increment financing support from the city, one of several such projects moving forward in the area.

“The ultimate survival of the Loop as an office destination is going to happen because people live there,” Kirsch said. “There are other markets in the country that have less residential use and they’re going to have a harder time recovering.”