IRR-Chicago Mid-Year Viewpoint 2015 Local Market Report - Office
The Central Business District continues to thrive and expand with large office and mixed use buildings under construction and even more planned along the river. An interesting dynamic is playing out as older Class B/C office buildings in the CBD are being converted to multifamily and even hotel uses in the traditional Loop office market, leaving limited space for firms looking for more affordable office rental options. This is pushing some tenants to burgeoning submarkets in River North and the West Loop, and vacancy rates are still declining as construction costs dictate that new supply attempts to attract Class A tenancy.
Some Class A-/B+ buildings are opening up floor plans and limiting tenant improvements in an effort to attract technology-focused firms, and the CBD continues to add jobs at the expense of the suburban markets. The suburban markets are still experiencing declining vacancy rates, though this is more the result of limited new supply due to the challenging market economics (a decade of 20%+ vacancy rates in most suburban office markets) than strong fundamental improvements driving overall growth of the suburban marketplace.Meanwhile, improved fundamentals in the CBD markets have been driving valuation appreciation and several investors have flipped assets purchased in the last 5 years for sizeable profits. Also, after setting a market high in terms of price per square foot with the sale of 300 N. LaSalle in 2014, themarketplace experienced a gross sales price record in 2015 with Blackstone's recently rumored $1.3 billion acquisition of the Willis Tower (fomerly known as the Sears Tower). The acquisition of this trophy asset is indicative of the overall changes in the CBD market, as investors look to add tenant amenities and mixed use components to a historically more traditional and daytime only office market area.
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IRR Mid-Year Viewpoint 2015 comprises a National Overview report and 300+ two-page Local Market Reports for all key property types as well as additional resources, including metrics methodology, graphs, and tables; these free reports may be downloaded from IRR’s site here.