Chicago Office Market Logs $208M in Sales Despite Lowest Prices Among Gateway Cities

Challenges in the office sector, including reduced demand and high interest rates, have led institutions to sell high-quality assets. This strategy helps balance their portfolios, reduce office exposure, and mitigate risk on their balance sheets.

Chicago's Office Sales Performance

Despite modest market conditions, Chicago recorded $223 million in office sales year-to-date through April, with an average price of $81 per square foot, according to CommercialEdge data.

Halt in New Construction

In April, Chicago had 1.0 million square feet of office space under construction, representing 0.3 percent of the existing stock. This is close to Washington, D.C.’s 0.9 percent but lower than Seattle's 3.6 percent. The significant project underway is the 360,000-square-foot development at 919 West Fulton, backed by $233 million in financing from Fulton Street Cos.

Another major project is the 302,388-square-foot life science development by Trammell Crow Co. and Beacon Capital Partners in Chicago’s South Side, expected to be delivered by late 2024, with tenants moving in by early 2025.

Office Space Deliveries

Approximately 875,000 square feet of office space across seven properties was delivered in Chicago year-to-date, accounting for 0.5 percent of the total stock. Seattle, Boston, and San Francisco saw higher deliveries with 2.5 million, 1.4 million, and 1.4 million square feet respectively.

Low Sales Prices in Gateway Markets

Chicago office prices averaged $81 per square foot year-to-date through May, lower than the national average of $151.29 per square foot. A total of 21 properties exchanged hands, totaling 7 million square feet. Other markets included the Twin Cities with $177 million in sales at $163 per square foot, and Detroit with $43 million at $76 per square foot.

Vacancy and Rent Trends

Chicago’s office vacancy rate rose to 19.1 percent in April, a 30 basis point increase year-over-year, with rents contracting by 20 basis points to $27.85 per square foot, ranking as the sixth-lowest among the top 25 U.S. office markets. Cities like Boston, Miami, Washington, D.C., and Los Angeles had better vacancy rates, while Seattle and San Francisco experienced higher rates.

Leasing Activities

A few leases were closed in Chicago's office sector through April. Heitman secured a 10-year lease extension with Mesirow for over 100,000 square feet at 353 N. Clark St. until 2036. Additionally, Ivanhoé Cambridge and Hines signed a lease with Pinterest for 24,000 square feet at their office complex in the West Loop.

Coworking Space Stability

As of April, Chicago’s coworking sector included more than 6.2 million square feet, representing 1.9 percent of all leasable office space, aligning with the 1.8 percent national average. Manhattan led the coworking market with 12.7 million square feet, followed by Los Angeles with 6.6 million square feet and Washington, D.C. with 6.3 million square feet.