Q4 2022 Office Space Report: Chicago, IL
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
Chicago is home to many notable company headquarters, including those of Walgreens, Tyson Foods, and Kraft Heinz, among several others.
The population in the city is 8.9 million, with a growth rate of approximately 0.27%. The unemployment rate in the city was at 4.2% at the end of Q4 2022.
For Chicago’s office space market in Q4 2022, vacancy rates were high, absorption was negative, and asking lease rates continued to climb.
General Area Overview & Demographics
Chicago is the third-largest city in the United States. The city is home to a diverse population, with African-Americans making up 29.7% of the city’s population, followed by whites at 28.7%, Latinos at 28.3%, and Asians at 9.7%.
Chicago Median Household Income & Population
The median household income in Chicago is $54,528, which is slightly lower than the national average of $55,322. The city has the second highest poverty rate in the country at 21.2%.
The median age in Chicago is 33.7 years old, with 17.7% of the population under 18 and 11.4% over 65. Millennials (ages 18 - 34) account for 33.5% of the population, while Baby Boomers (ages 55-73) make up 17.7%. The city also has a large Gen X population (ages 35-54) at 31.8%.
Northwestern University, the University of Chicago, and DePaul University are located in Chicago. The city also has six public universities, two-year colleges, and numerous other private institutions.
The city is home to numerous major attractions, including the Willis Tower (formerly Sears Tower), The Art Institute of Chicago, Navy Pier, Shedd Aquarium, Lincoln Park Zoo, and Millennium Park. There are also dozens of annual festivals such as the Chicago Blues Festival and Lollapalooza.
Chicago has a humid continental climate and four distinct seasons. Winters are cold, with temperatures usually ranging between 20-30 degrees Fahrenheit (-6 to -1 degrees Celsius). Summers are warm and humid, with temperatures usually ranging between 60-80 degrees Fahrenheit (15.5 to 26.6 degrees Celsius).
Summary of Chicago Office Space Performance in Q4 2022
Vacancies for Chicago’s office space market were up to 18.9% in Q4 2022. One of the highest vacancy rates in the city could be found in the Central Loop submarket at 24.4%. The North Michigan Avenue submarket featured one of the lowest at 13.1%.
Total absorption in the CBD reached 294,348 square feet, bringing the net total for the year to nearly 1.45 million square feet of Chicago office space absorbed.
What are office space rents like in Chicago?
The average rent per square foot for Chicago office space in Q4 2022 was about $44.47, increasing from Q3 2022’s numbers.
Class A rents averaged $52.52 per square foot, while Class C averaged $31.16 per square foot. The River North submarket saw Class A rents reach as high as $58.01 per square foot.
Purchase & Leasing Activity
Two properties totaling about 240,714 square feet of office space sold in Q4 2022 in Chicago’s CBD. These were both Class B properties.
One of these properties sold at $92 per square foot. The other was sold at an undisclosed amount.
Leasing volume for Chicago office space in Q4 2022 was at about 995,688 square feet, with the majority coming from the West Loop submarket.
Notable Office Space Deals in Chicago in Q4 2022
There were several notable deals that took place for Chicago office space in Q4 2022:
- Zoro leased 41,875 square feet in the West Loop submarket.
- Ryan Specialty leased 40,000 in the West Loop submarket.
- Heitman Credit Acquisition XXV Llc bought 123,835 square feet in the West Loop submarket.
- Farbman Group purchased 116,879 square feet in the West Loop submarket for $10,775,000.
These are select examples among other activity.
New Office Space Development Activity in Chicago in Q4 2022
The Chicago CBD saw 2.68 million square feet of office space under construction in Q4, a year-over-year decrease from Q4 2021’s 3.6 million.
New office space deliveries totaled approximately 2.4 million in 2022.
Market Forecast for Chicago’s Office Space Market
Vacancies for Chicago office space are projected to increase in 2023. Absorption, asking lease rates, and the amount of space under construction are all projected to decrease in the same year.
With increasing lease rates and high vacancy rates, potential tenants may look to acquire more permanent office space.
Takeaways for Office Space Investors
Investment sales for Chicago’s CBD have been steadily increasing after the pandemic. While investors are still active in the market, 2023 may pose some notable challenges.
Interest rates are continuing to climb as the Fed continues to battle inflation. Chicago property owners are concerned over their current property valuations as already high vacancy rates continue to increase.
Investors may prefer to wait for Chicago’s office space market to return to a more favorable climate before taking any steps forward.
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