Suburban and downtown Chicago are thriving communities with lots of potential for businesses. The central location makes the city a hub of activity and a prime workspace location. It’s no wonder that it’s a desirable area for business owners looking to rent offices.
If you are interested in leasing office space downtown or in the suburban Chicago neighborhood, it’s wise to get familiar with the leasing market beforehand. You’ll want to know how much new construction is being used for multi-tenant office space, what the vacancy statistics are and what landlords are doing to get tenants to sign new leases. This article will tell you all you need to know about office leasing in Chicago.
What’s Happening with Office Leasing Chicago?
Chicago commercial real estate has seen a dive due to the COVID-19 pandemic. In fact, you may be wondering, will coronavirus bankrupt commercial business owners? Hopefully not.
Many businesses opted for work-from-home scenarios, which reduced their need for office space. Many of them gave up their offices completely and some have switched to a hybrid structure. Now, landlords are doing everything they can to bring new tenants into the area, making for a renter’s market.
The pressure on landlords is being felt acutely due to the rising costs of maintenance, construction materials, and taxes. Renters are taking advantage of the lower prices by seeking out modern spaces in luxury buildings that are close to public transportation.
The decrease in demand has lowered Chicago commercial real estate prices, but experts predict they will rise again. New construction will lead to a gain in momentum that will drive rents up. But properties will still be a bargain as compared to cities like New York and San Francisco.
How Much New Construction is Being Used for Chicago Multi-Tenant Office Space?
The increased use of flexible and hybrid workspaces has boosted the amount of available commercial Chicago office spaces. They have reached a historical high of 95.3 million square feet of space, accounting for 18.7% of their total inventory. They have increased by more than 20 million square feet since the first quarter of 2022.
In terms of leasing, deliveries come in at 2.8 million square feet, coming down from 3.6 million in the fourth quarter of 2021. The net absorption is at -5 million square feet, coming down from -7.8 million in the fourth quarter of 2021. The vacancy rate is at 15.2% compared to 15.3% at the end of 2021 and the 12-month rent growth is +0.4%, coming up from 0.1% in 2021.
There are 15 projects under construction as compared to 14 in the fourth quarter of 2021. This accounts for 2,218,416 square feet. 0.04% of inventory is being worked on and 85.1% has been preleased.
As previously touched on, vacancies in suburban and downtown Chicago are at an all-time high. While the COVID-19 pandemic didn’t help, the increase is largely due to new supply hitting the market and not by tenants pulling out of their spaces.
For example, the BMO Tower by Union Station was completed with almost half the building still available for lease. Three other new developments that are almost empty include 400 North Aberdeen St., 1045 West Fulton St., and 609 W. Randolph St. Completed in 2021, these West Loop buildings helped to add to the city’s vacancy percentages.
The market isn’t totally dead. But it’s represented by a shift of businesses competing for renovated, updated spaces to older properties, such as the ones in the West Loop, which aren’t catching must interest.
With only .04% of inventory being worked on and only 15 properties under construction, the rate of new construction is relatively low. This is attributed not only to the lack of demand but also to labor shortages.
Labor shortages occurred due to the COVID-19 pandemic. With many construction workers home from work, a good percentage decided to seek new job opportunities or retire completely. The labor shortage also fuels high material costs making new construction projects even more expensive.
What are Landlords Doing to Get Tenants Back?
With available commercial spaces in Chicago at all-time highs and vacancies at all-time lows, you can bet landlords are doing all they can to attract clients. Here are some of the actions they are taking.
- Renovations: Many landlords have taken the downtime they experienced during the pandemic to make renovations to their properties. This will make the spaces more attractive to renters looking to move in. It will also allow the landlords to charge higher rents.
- Flexible Leasing Contracts: Flexible leasing contracts were once something landlords avoided. Today they are offering more flexible terms to attract clients, including shorter leases.
- Customization of Spaces: Landlords often don’t allow tenants to remodel extensively. Now they are permitting customization as a way of attracting new leasers.
ChicagoBroker Can Help
The state of Chicago’s office leasing market has its shares of pros and cons. Landlords are struggling to attract tenants. Lessees can take advantage of the low prices but may be dealing with competition getting into some of the more desirable buildings. Whatever situation you find yourself in concerning office leasing in Chicago, one of OfficeFinder’s top brokers, ChicagoBroker can help.
ChicagoBroker offers commercial lease consulting, tenant representation, and investment brokerage services. We provide tenants with the benefits of tenant representation, helping them find the best properties at the best prices. We can help you negotiate a leasing agreement that is best suited to your needs.
Office leasing in Chicago is seeing its share of ups and downs. ChicagoBroker offers services that ensure the market works in your favor. Contact us to find out how to get the most out of your transactions and keep an eye on our website for more blogs coming soon.
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