Q1 2023 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 known for its impressive architecture, deep-dish pizza, blues music heritage, and its place as the home of one of the world’s most iconic skylines.
The city houses several major companies, including global financial institutions such as JPMorgan Chase, Boeing, United Airlines, McDonald’s Corporation, and Abbott Laboratories, contributing to the city’s thriving business landscape.
The unemployment rate in Chicago reached 4.7% in the first quarter of 2023. Chicago’s office space market performed negatively in Q1 2023, reflecting the current state of the economy.
General Area Overview & Demographics
Chicago, known as the "Windy City," is a vibrant metropolis located in the state of Illinois, in the Midwestern region of the United States. As the third-largest city in the country, Chicago is a major economic, cultural, and transportation hub.
Chicago’s Economy, Population, & Demographic Makeup
Demographically, Chicago is a diverse and multicultural city. As of the latest available data, the estimated population of Chicago is over 2.7 million people. The largest ethnic group in Chicago is the non-Hispanic White population, followed by African Americans. Additionally, Chicago is home to significant Hispanic or Latino, Asian American, and other communities, including Polish, Irish, and Italian descendants, among others.
The city is a global center for finance, commerce, technology, manufacturing, and transportation. It hosts the headquarters of several major companies and is renowned for its financial district, known as "The Loop." Chicago is also a leader in various industries, including architecture, healthcare, education, and professional services.
Geographically, Chicago is located on the southwestern shore of Lake Michigan, one of the Great Lakes. The city’s skyline is dominated by iconic skyscrapers, such as the Willis Tower (formerly Sears Tower), which was once the tallest building in the world.
Chicago is known for its vibrant arts and culture scene. It boasts world-class museums, including the Art Institute of Chicago and the Field Museum of Natural History. The city is also renowned for its architecture, with notable landmarks like the Chicago Water Tower and the Frank Lloyd Wright-designed Robie House.
In terms of sports, Chicago has a passionate fan base and is home to several professional sports teams, such as the Chicago Cubs (MLB), Chicago White Sox (MLB), Chicago Bulls (NBA), Chicago Bears (NFL), and Chicago Blackhawks (NHL).
Transportation in Chicago is well-developed, with an extensive public transit system consisting of buses and a subway system known as the "L" (short for "elevated"). The city is also served by two major airports, O’Hare International Airport and Midway International Airport.
Summary of Chicago Office Space Performance in Q1 2023
Vacancies for Chicago office space increased to 19.8% in Q1 2023. The Central Loop submarket posted the highest vacancy rate in the area at 26.8%. Net absorption decreased to -102,916 square feet in the quarter.
What are office space rents like in Chicago?
Gross asking rental rates for Chicago office space increased from Q4 2022 to $44.67 per square foot in Q1 2023. This was also a notable increase from Q3 2022’s numbers.
The River North submarket posted the highest average rate per submarket at $49.24.
Class A rents were highest in the Fulton Market/Far West Loop submarket at $60.84 per square foot.
Purchase & Leasing Activity
Leasing activity for Chicago office space was low in Q1 2023 at 885,000 square feet leased, a 33% decrease year-over-year from Q1 2022.
The average sales price per square foot was approximately $100; however, sales activity was extremely low this quarter.
Notable Office Space Deals in Chicago in Q1 2023
There were several notable deals that took place for Chicago office space in Q1 2023:
- Katten Muchin Rosenman renewed their lease of 204,000 square feet at 525 W. Monroe Street.
- Enova renewed its lease at 174 W. Jackson Blvd. of 135,000 square feet.
- Chubb renewed its lease at 525 W. Monroe Street of 92,000 square feet.
- Ryan Specialty group leased 56,288 square feet at 155 N. Wacker Drive.
These are select examples among other activity.
New Office Space Development Activity in Chicago in Q1 2023
About 2.7 million square feet of Chicago office space were under construction across six different properties in Q1 2023.
The River North submarket contributed the majority of office space square footage under construction with 1.4 million square feet of Class A space being added to the pipeline.
Market Forecast for Chicago’s Office Space Market
New construction projects for Chicago’s office space market will likely lag as developers wait for more favorable economic conditions.
Vacancies will likely continue to increase slightly as tenants look to move to higher-quality spaces. Due to current flight-to-quality trends, average asking rents will continue to shift to more competitive prices.
Takeaways for Office Space Investors
Investors should look to renovate current acquisitions to maintain leases if they can financially sustain such projects. With greater tenant demand on the quality of spaces, investors may do well to acquire Trophy or Class A spaces as the economy allows them to.
Do your research, stay diligent, and happy investing.
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