Demand for downtown Chicago office peaks in two years

This backdrop continues to push homeowners with large blocks of space to fill to offer additional free rent and lease term flexibility to entice businesses to sign up.

While many companies are still thinking about how they will use offices in the future, “the bold ones who have stepped forward and taken advantage of market opportunities believe the worst may be behind us, and this is it. that you see in those numbers, ”said leasing agent Jon Cordell, executive vice president of CBRE. “The good news is that the uncertainty isn’t as high as it used to be. There is more determination in needing office space.”

In support of this sentiment, more than 200,000 square feet of positive net absorption during the fourth quarter, a key demand metric that measures how the amount of space leased and occupied has changed over the period. former. The Fulton Market District – which won the lion’s share of transactions during the pandemic – increased that absorption figure with CCC Information Services and Kroll (formerly Duff & Phelps) occupying their new offices at 167 N. Green St. Elsewhere in downtown, cryptocurrency startup CoinFlip moved into more than 43,000 square feet at the old post office, and online consumer loan firm Affirm occupied a footprint similar in size to the 350 N. Orleans St.

But homeowners will need these gains to accelerate and offset the huge rental losses over the past two years. Net absorption for all of 2021 fell 2.1 million square feet, the worst year on record, according to data from CBRE. This wiped out almost all of the combined positive absorption of 2020 and 2019, the latter reaching an all-time high.

A few important new leases gave some landlords reason to feel better in the fourth quarter. Heavy-duty tool maker Milwaukee Tool and farm equipment giant Deere signed agreements for their first Chicago offices in October and November, respectively, underscoring the value businesses place in planting their flag downtown for access the city’s vast pool of tech-savvy talent.

Businesses are also willing to pay more to modernize their space, hoping to motivate their employees to work from their desks rather than from their homes, Cordell said. This has worked well for newer and newly renovated buildings: around 75% of office moves that have taken place in the past nine months have been to better buildings, according to CBRE.

Two owners of these top properties struck deals during the fourth quarter to build on their rental success. The New York developer who turned the old post office into a modern office building that is now 95% leased, refinanced the property with an $ 830 million loan, one of the biggest mortgages ever for an office building in Chicago. And in the new Bank of America tower at 110 N. Wacker Drive, which is over 85% leased, Dallas-based Howard Hughes recently struck a deal to sell his controlling stake in the property to an investment firm. from New York. This deal values ​​the skyscraper at around $ 1 billion.

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