Chicago Office Market Snapshot: Third Quarter 2010

CHICAGO, IL--The following summary is designed to provide a brief overview of the Chicago metro office market during the third quarter of 2010. 

 For more information or to speak with one of the company’s local market experts, please contact Erin Mays at 312.698.6735 or via email at erin.mays@grubb-ellis.com.

REGION

• The region’s vacancy rate stayed flat at 20.9 percent during the third quarter, posting a total of 128,000 square feet of positive absorption.  Net absorption is negative 680,000 square feet for the first nine months of 2010.
• The area currently has just 48,000 square feet of new development under construction – a fraction of the 5.8 million square feet under construction at the market’s peak in third quarter 2007.
• Average Class A asking rental rates for the region increased $0.41 from the second quarter to $29.90 per square foot.
• Inventory of available sublease space saw a decline in the third quarter to 5.5 million square feet – down from 6.6 million square feet in the previous quarter.
• The investment market continues to become more active than it was in 2009, particularly for core assets with high occupancies and limited lease exposure.  Distressed assets have been slow to emerge as lenders continue to work out issues with borrowers or instead, move to sell their loan before foreclosure proceedings.

CHICAGO CENTRAL BUSINESS DISTRICT

• The vacancy rate in the Chicago CBD office market remained unchanged from the prior quarter at 17.4 percent, with the market posting 57,000 square feet of positive absorption.
• Class A average asking rental rates increased $0.77 per square foot, full service gross.
• No new construction is underway in the CBD.

SUBURBAN CHICAGO

• The vacancy rate stayed constant at 25 percent.  There was a nominal 70,000 square feet of positive net absorption. 
• Just one building of 48,000 square feet is currently under construction in the I-88 East submarket. 

       Average Class A asking rental rates in the Chicago suburbs stood at $23.73 per square foot, a slight increase of $0.04 from the previous quarter.

Analysis:  The Chicago office market made it through the slow summer months without any significant hiccups and with some good news about languishing lease transactions finally fully executing. 

Any significant regeneration of office market fundamentals is highly dependent upon employment numbers, however.  Although the Chicago area unemployment rate has decreased by 60 basis points since this time last year, it is still 40 basis points higher than the national rate, and it has a long way to go until it reaches more normalized levels.

Despite a still-shaky economy, there is growing confidence among tenants regarding the future of their businesses.

They are becoming less hesitant to make lease commitments for more than just a few years, and while the majority of lease transactions continue to be renewals and many tenants continue to downsize, more relocations and expansions are taking place.

To access the full Chicago Metro Office Trends report and other Grubb & Ellis research publications, visit www.grubb-ellis.com/research.

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