Chicago CBD Office Market Sees Impact of Uncertain Times

The office market in Downtown Chicago experienced an uptick in vacancies, and a chunk of negative absorption in the first quarter of 2008, according to a report released this week by locally based MB Real Estate (the report also covered suburban Chicago).  The Downtown section of the report noted that the quarter’s results come in the wake a year—2007–that was one of the healthiest ones in recent memory for the market. “The market was in balance and the expansion allowed commercial real estate to rebound from the negative absorption numbers experienced from 2001-2005,” the report noted. “In 2006, the Chicago CBD finally showed signs of a market recovery. Improved economic conditions, record-breaking building sale activity, new tenants, and controlled construction activity contributed to a healthier market [that] continued through 2007.”  That healthier market is on hold for now. The overall vacancy rate for the CBD is 12.25 percent, an increase from 11.67 percent in the fourth quarter of 2007. Even Class A office space, always the strongest type in the Chicago market, edged up to s 10.72 percent vacancy at the end of the first quarter of 2008, compared with 10.55 percent at the end of the fourth quarter 2007. Moreover, the Downtown market saw a negative absorption of about 469,100 square feet during the quarter. “This is due to many companies postponing expansion plans until the market recovers or until they are forced to start looking due to 2009 expirations,” the report posited.   As yet, the softening of the market hasn’t affected Downtown rental rates–yet. The report said that despite the problems in the credit markets, solid leasing activity throughout 2007 gave landlords the opportunity to maintain rental rates and reduce concessions. “However, if the trend of negative absorption continues, it is likely that rental rates will lower and concessions will rise once again,” it added.