Another crop of major firms chose to move to the CBD in the third quarter, driving the vacancy rate down 20 bps to 12 percent, the lowest it has been since 2008. Positive absorption was recorded at 268,627 square feet.
Kraft, ConAgra, Motorola Solutions and several other firms all took significant space, making moves downtown from the suburbs. In the case of ConAgra, the firm moved its Chicago-area operations from Naperville to the Merchandise Mart, and, soon after announced it would be relocating its corporate headquarters from Omaha to its new CBD location.
“While downtown rents are higher than the suburbs, the risk of potentially not attracting the right talent in the suburbs continues to outweigh the increased occupancy costs downtown,” said Jon Milonas, First Vice President with CBRE. “In addition, companies are using space more efficiently, which means that more people are working in a smaller square footage. Suburban parking garages and lots weren’t built for this type of density. When our clients study the costs to build a parking garage versus higher rents downtown, the downtown options are proving to be quite compelling.”
Significant expansions took place as well, with Groupon and Yelp both renewing and expanding their space at 600 W. Chicago and the Merchandise Mart.
All of this activity has emboldened landlords to push rental rates as tenants currently have few options on the market. Average rates rose $.48 PSF to $36.19.
However, with a flush of new construction set to hit the market in 2017, the tables may be turning in the tenants favor as the market will see 6.6 million square feet of new and shadow space hit the market.
“The next 12-18 months will likely continue to be a landlord’s market with rental rate increases continuing and high competition for space, but the upcoming supply in 2017 will likely drive a shift in the favor of tenants starting in the third quarter of 2017 once the majority of the shadow space hits the market,” said Milonas.