Despite sluggish demand, rents in Chicago’s Central Business District office sector remain elevated. Landlords have continued raising rates, which increased by 35 cents from the third quarter to $43.39 per square foot—up 71 cents from a year ago.
"Landlords are carefully calibrating their pricing strategies to navigate current vacancy challenges while also attempting to preserve face values," Colliers wrote.
Interestingly, vacancy remained flat at 23.3 percent. This stability was influenced by the reallocation of 2.5 million square feet of office space for future apartment conversions and the lack of new office supply in the fourth quarter. The availability rate declined slightly from 28.9 percent to 28.5 percent.
Still, demand remains weak. In the fourth quarter, negative net absorption reached -768,717 square feet, a more than six fold increase from the previous quarter, bringing the total for 2024 to -1.77 million square feet, according to the latest market report from Colliers. The most significant declines occurred in the East Loop, where net absorption was -331,811 square feet, marking the seventh consecutive quarter of losses in that submarket.
"Owners of high-value, high-class assets continue to lease in this market while the landscape remains littered with less productive assets, emphasizing the growing divide between well-capitalized properties and those struggling to adapt," Colliers noted.
In 2024, approximately 720 office leases were signed (159 in the fourth quarter), down from 789 in 2023. However, "the size of signed new deals over 10,000 square feet grew on average by 3,000 square feet. In addition, there has been a significant increase in deals signed this quarter over 30,000 square feet," according to Colliers.
The largest fourth-quarter leases included Sargent & Lundy signing a 384,347-square-foot relocation and extension deal in Central Loop, while PwC renewed for a smaller 282,577-square-foot footprint in West Loop.
Although the slowdown in new office deliveries has provided temporary relief, absorption is not expected to turn positive in the near term. At best, the trend of negative absorption may begin to narrow. Investment sales also face uncertainty in the long term.
"In the year ahead, greater clarity is anticipated regarding the strategies and sentiment driving investor activity in the market. The question surrounding the valuation of office assets is no longer whether they will decline, but rather the extent of the decrease," Colliers stated.
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