CBRE is tracking that by 2018 the downtown office market will add 6.6 million square feet to the current (roughly) 15.3 M available as of Q3 2015. This includes new product coming on line, vacated space and sublease space, typically known as shadow space.
As impressive class A towers, such as 150 N. Riverside and 444 W. Lake, come on line, new tenants will be leaving behind significant foot prints for sublease, particularly in the West Loop. In most cases, firms making the move to new towers will be leaving behind more space than they are taking.
If the market absorbs its predicted 1.2 MSF between now and 2017 (Chicago historically absorbs 417k square feet each year), available supply could increase by 35 percent in 2018.
“While Chicago has been bolstered recently by large corporate firms relocating downtown from the suburbs or other states, it is difficult to believe that the velocity of these transactions will keep up with new supply coming on line,” said Mark Cassata, Senior Associate at CBRE. “The market will have to see significant absorption in the next 12-24 months to avoid any negative effects on rates and vacancy. Even if the market has 1 million square feet of absorption over each of the next three years, available supply would still increase by roughly 20 percent.”
As firms are more concerned with attracting top-tier talent, a flight to quality among Chicago-area tenants is the likely outcome of the increased supply.
“The talent war is really dictating these moves,” said Bill Sheehy, a Senior Vice President at CBRE. “Many of these firms are committing to new towers or upgraded space with significant term left on their existing leases. They believe it is more important to obtain the new space for recruitment and retention purposes and they are willing to factor their remaining lease obligation into their overall real estate cost. These firm’s believe that they will make it up in the long-term by decreasing their footprint and improving their operations.”