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Downtown Chicago office vacancy back up to record high

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The surge in subleasing inventory has been the biggest driver of the ballooning amount of available office space in recent months. Businesses are looking to offload unnecessary space to save cash, and businesses in space-seeking markets are looking for ready-to-move offices to avoid having to deal with ballooning construction costs and delays in building new offices. is attracted to

Nearly 500,000 square feet of office space entered the downtown subleasing market in the past two months, pushing the amount of available space in the secondary market to a record 6.7 million square feet, according to CBRE. That’s more than double his subleasing inventory early in the pandemic.

Among the list of recent subleases: Marketing software company ActiveCampaign offers about 102,000 square feet in its 1 N. Dearborn St. office, and another 120,000 square feet of space was recently subleased by an online consumer finance company. Market at 222 N. LaSalle St. from Avant. and its technology spin-off amount.

On the bright side for landlords, tenants have outnumbered evictions in the past three months, the fourth straight quarter. Net absorption rate, a key demand indicator that measures changes in the amount of leased and occupied space compared to the prior period, increased by 530,000 square feet during the third quarter, according to CBRE. It was the best demand quarter since the end of 2019, with total downtown net absorption exceeding his 1.4 million square feet in the past 12 months.

Office building owners also received surprisingly positive news in late July. Google announces plans Renovate, occupy and purchase the James R. Thompson Center. The move came with the bonus that the state of Illinois plans to renovate and relocate its downtown offices to a largely empty building on LaSalle Street, but it will also take out a large chunk of new office supply and make it more affordable. It can help attract more businesses. Pandemic-hit Central Loop.

Yet demand for new offices is not evenly distributed among landlords. As businesses take advantage of the soft market and look for amenity-rich spaces that will help more employees want to work in the office rather than remotely, modern and recently renovated buildings will attract more We are getting a new lease.

According to CBRE data, the average vacancy rate for top-tier (Class A) office buildings has fallen from 17% to 14.7% over the past year. Downtown class B building vacancy increased from 19% to 22% over the span.

“If a tenant is looking for a sizeable block of space or a quality Class A building[with offices in it]there are just too many options,” says Serot. “Tenants are entering the market and rethinking their real estate strategy and philosophy of bringing employees back into the office…they are willing to pay more than ever for a better employee experience. I wouldn’t mind.”

Mayor Lori Lightfoot recently wants to help get rid of some of the outdated office supplies and revitalize The Loop in the process. hanging incentives For example, tax-raised loans for developers to convert vacant office buildings on LaSalle Street into apartments.

However, new office supply is still hitting the market that could pull tenants out of existing buildings. CBRE is currently tracking seven of his buildings under construction totaling 3 million square feet of office space, 59% of which are pre-leased. That number includes his 801 S. Canal St., his 700,000-square-foot former Northern Trust office building recently used by New York developer 601W. $215 million in funding Transformed into a modern multi-tenant office building.

Precarious rental conditions are already taking a toll on downtown office building values. The California firm that paid his $23.5 million for the loft office building at 600 W. Jackson Blvd. We spent another $8 million in renovations in 2017 and sold the property this month For just $11 million. Nearby office tower at 200 S. Wacker Drive hit the market About $170 million in bids is expected, down significantly from the $215 million that owners paid for the building in 2013.

Other downtown office landlords face imminent loan problems. Owner of all office buildings at 216 W. Jackson Blvd., 19 S. LaSalle St., 10 S. LaSalle St., and 1 N. LaSalle St. Transferred a mortgage to a special servicer The last few months have shown that owners may default or need to restructure their loan terms to avoid doing so. All of these loans were packaged with other mortgages and sold to commercial investors backed by the mortgages, exposing much of the financial performance data.

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