The state of the Chicago office market remains strong and 2018 should be another solid year, according to CBRE’s Drew Nieman, who recently spoke at the Illinois Real Estate Journal’s 16th Annual Real Estate Forecast
Through 2015, the Chicago market had been experiencing robust positive absorption, according to research from CBRE. Yet vacancy began to tick up from a low of 10% in Q1 2016 to 12.2% at the end of 2017 as new product came on line, and, firms continued to contract their space.
“We have seen vacancy tick up, but there is still a lot of good activity out there and suburban firms continue to move to the CBD,” said Nieman. “When you are tracking 140 million square feet, I feel like 12 percent is the new 10 percent.”
Nieman did also point out that while vacancy has gone up, lease rates have as well, ending 2017 at an average of $38.95 gross.
“It’s a very interesting market when we see vacancy increase and rental rates increase,” said Nieman. “This is because of the new product coming on line. Rental rates in the newest buildings are about $55 per square foot gross. The newest buildings that will come to market later this year and next year will be pushing $60. Tenants are willing to pay this.”
The panel discussed “disruptors” in the market, or, new trends that are changing traditional business practices. Nieman cited the growth of shared-office providers.
“We used to see shared-office providers come in at the tail end of a lease up and take nominal amounts of space,” said Nieman. “That has changed. Now, these providers are often looking to take large chunks of space, right next to major corporate users. When those corporate users are then looking to expand, the shared office provider wants to be that expansion space. They are a force to be reckoned with in our new lease-up scenarios.”
Nieman expects both 2018 and 2019 to be strong years in Chicago, but the market will continue to evolve and what was once a core market is being redefined.
“A trend that I am seeing globally is that Main and Main is not Main and Main anymore,” said Nieman. “Things are shifting, and big tenants are looking at emerging markets outside of traditional CBDs as real options. We have seen that here in Chicago and we will continue to see it.”