Chicago Office Prices Lowest Among Gateway Markets

Due to several challenges in the office sector, including reduced demand and high interest rates, office sales nationwide have been driven by institutions selling high-quality assets. This strategy helps them balance their portfolios, reduce their office exposure, and mitigate risk on their balance sheets.

Despite the market’s tame metrics, year-to-date through April, Chicago logged $223 million in office sales at an average price of $81 per square foot, according to CommercialEdge data. As of April, Chicago had 1.0 million square feet under construction, accounting for 0.3 percent of its inventory.

A halt in new construction starts

In April, Chicago recorded 1.7 million square feet of office space underway across nine properties, which represented 0.5 percent of existing stock. Meanwhile, the national figure stood at 1.5 percent. Among peer markets, Chicago was on par with Washington, D.C. (0.9 percent), while other metros such as Seattle (3.6 percent) recorded above-average figures.

The second largest project underway is 919 West Fulton, a 360,000-square-foot development in Chicago’s downtown. The developer, Fulton Street Cos., has secured $233 million in both equity and debt financing for the 11-story office building.

Trammell Crow Co. and Beacon Capital Partners have recently topped out another major project, a 302,388-square-foot life science development in Chicago’s South Side neighborhood. Hyde Park Labs is scheduled to be fully delivered in the fourth quarter of this year, with first tenants expected to move in by early 2025.

Approximately 875,000 square feet of office space across seven properties was delivered in the metro year-to-date, accounting for 0.5 percent of the total stock. A few gateway markets stood out in terms of office space coming online in this period, including Seattle (2.5 million square feet), Boston (1.4 million square feet) and San Francisco (1.4 million square feet). 

Lowest sales price among gateway markets

Year-to-date through May, some $223 million in office sales was recorded, as Chicago office prices stood at $81 per square foot. That’s lower than the national average of $151.29 per square foot. A total of 21 properties exchanged hands, totaling 7 million square feet.

Coming up next, the Twin Cities saw $177 million in closed office deals at an average of $163 per square foot, while Detroit recorded a small volume of $43 million, with properties trading at $76 per square foot.

Sixth-lowest asking rent

Meanwhile, the market’s vacancy rate stood at 19.1 percent, up 30 basis points year-over-year in April, while the rents contracted by 20 basis points, coming in at $27.85 per square foot: the sixth-lowest asking rent across the top 25 U.S. office markets.

Boston (12.4 percent), Miami (13.0 percent), Washington, D.C. (16.8 percent) and Los Angeles (16.5 percent) all fared better than Manhattan in terms of vacancy. On the other side of the spectrum, Seattle (23 percent) and San Francisco (25.9 percent) saw even larger rates.

A small number of leases closed in Chicago’s office sector through April. Heitman has landed a 10-year lease extension at its office tower in Chicago’s River North area. Financial services firm Mesirow will continue to occupy more than 100,000 square feet at 353 N. Clark St. through 2036. 

Ivanhoé Cambridge and Hineshave signed a lease agreement with Pinterest at 10 and 120 S. Riverside Plaza, a two-building office complex in Chicago’s West Loop. The company committed to 24,000 square feet at the 1.4 million-square-foot Class A campus.

Coworking maintains stability

As of April, the Windy City’s coworking sector included more than 6.2 million square feet of coworking space, representing 1.9 percent of all leasable office space— on par with the 1.8 percent national average.

Among peer markets, Manhattan was the forefront with almost 12.7 million square feet, followed by Los Angeles (6.6 million square feet) and Washington, D.C. (6.3 million square feet).