Strengths and Weaknesses of Chicago’s Office Market

Hyde Park Labs expects completion by late 2024. Image courtesy of Trammell Crow Co.

Chicago’s office market has continued to give off mixed signals, as investors and developers try to navigate ongoing struggles within the sector. While in the case of some metrics the metro performed relatively on par with national trends, it fell significantly behind others, according to fresh CommercialEdge data.

The amount of office space that broke ground during the first nine months of 2023 was more than double the square footage registered during the same period last year. However, prices in the Windy City plummeted, down more than 32 percent year-over-year as of September and significantly behind all gateway markets.

Chicago’s office pipeline grows

At the end of the third quarter, Chicago had 3.6 million square feet of office space under construction across 15 properties, amounting to 1 percent of existing inventory—below the national average of 1.8 percent. The metro’s relative-to-total-stock pipeline was smaller than those of Manhattan (2.2 percent), Boston (5.6 percent), San Francisco (3.9 percent) and Washington, D.C. (1.2 percent).

In the year’s first nine months, construction or redevelopment started at six properties for a total of nearly 1.7 million square feet, or 0.5 percent of stock, 20 basis points above the national average and considerably surpassing the 942,803 square feet that broke ground during the same period in 2022. One of the buildings that commenced construction this year was Hyde Park Labs, a 302,388-square-foot life science project developed by Trammell Crow Co. and Beacon Capital Partners.

Six properties came online in the first three quarters of 2023, totaling 2.1 million square feet and representing 0.6 percent of stock, on par with the national average. Last year in the same timeframe, a slightly larger inventory was delivered, at 2.3 million square feet. The largest property that was completed this year is Salesforce Tower, a 1.2 million-square-foot high-rise developed by Hines and Salesforce in Chicago’s downtown.

Chicago office sale prices lag comparable markets

230 West Monroe

230 W. Monroe is within walking distance of the Art Institute of Chicago. Image courtesy of Menashe Properties

Roughly 10.3 million square feet of office space changed hands in the Chicago office market year-to-date through September, for a total volume of $830 million, well above markets such as San Francisco ($571 million) and Seattle ($120 million).

The average price per square foot clocked in at $110, down 32.7 percent year-over-year and significantly below the national average of $197.1. The metro registered the smallest average price among its gateway peers including Manhattan ($567.4 per square foot), Boston ($321.8), San Francisco ($321.5) and Seattle ($279).

Burr Ridge Healthcare Facility is less than 20 miles from downtown Chicago. Image courtesy of CommercialEdge

Burr Ridge Healthcare Facility changed hands for $60 million. Image courtesy of CommercialEdge

One of the largest office deals in the metro this year was Menashe Properties’ $45 million purchase of 230 W. Monroe, a 707,000-square-foot tower in the West Loop neighborhood. The price represented less than half of the $122 million paid by the previous owner, Accesso Partners, in 2014.

Another noteworthy transaction was Sila Realty Trust’s recent acquisition of Burr Ridge Healthcare Facility, for $60 million. The property features various services including primary care, ophthalmology, transplant, neurology, radiology and women’s health.

Vacancy on par with national rates

As of September, Chicago’s office market registered a 17.9 percent vacancy rate, just 10 basis points below the national average. It was slightly above Manhattan’s rate (17.7 percent) and exceeded that of Los Angeles (16.5 percent). The metro did however fare better than other gateway markets on the West Coast, including San Francisco (24.2 percent) and Seattle (22.3 percent).

120 S. Riverside Plaza spans  705,000 square feet across 21 stories

Raymond James took 74,000 square feet at 120 S. Riverside Plaza. The building spans 705,000 square feet across 21 stories. Image courtesy of CommercialEdge

Recent large office leases in Chicago included Raymond James‘ relocation to 120 S. Riverside Plaza. The company signed an agreement for 74,000 square feet across nearly two floors at the Ivanhoe Cambridge-owned building, bringing the property to 72 percent occupancy.

Bradford Allen also secured two leases totaling 35,000 square feet at 570 Lake Cook Road, an office property in suburban Chicago. The two tenants were flexible office space provider Venture X and design consulting firm Kimley-Horn, taking 19,000 and 16,000 square feet, respectively. The five-story building spans 138,000 square feet and underwent renovations last year.

Coworking maintains its hold

As of September, Chicago’s office market included 6 million square feet of shared space, accounting for 1.9 percent of total stock. Compared to other gateway markets, the metro was on par with San Francisco’s inventory and above that of Boston (1.7 percent) and Seattle (1.8 percent), but below Los Angeles (2.2 percent), Manhattan (2.6 percent) and Miami (3.3 percent).

Regus is one of the largest flexible space operators in the metro, its footprint comprising more than 945,000 square feet across 43 locations. WeWork also commands a sizeable portfolio in Chicago at 685,576 square feet in nine locations.

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