Chicago Office Market
Leasing for the first half of 2023 is down from the first half of 2022 as ongoing space reduction, a cloudy economic outlook and higher cost of capital, has prompted many companies to pause, assess current conditions and enact cost-cutting measures where applicable. Increasing vacancy rates are showing little indication of slowing as large corporations continue to contract space. This quarter vacancy jumped with the delivery of Salesforce Tower in the Central Business District, which is fully leased but less than 50% occupied right now. After holding steady for most of 2022, sublease space has spiked in the first six months of the year, reaching 4.8% availability. This trend is concentrated in the Central Business District, where sublease availability is now 5.4%, or 8.4 MSF.
Chicago Industrial Market
Absorption in the third quarter of 2023 totaled 4.4 million SF, the lowest value since the fourth quarter of 2020 as tenants remain cautious amid the higher interest rate environment. Despite the slowdown in absorption, Chicago industrial has still maintained strong occupancy levels of over 96.0%. New construction has continued to deliver with 10.4 million SF added this quarter, the largest quarter for deliveries since this quarter last year. Construction starts have continued to slow as development financing remains difficult. Vacancy increased to 4.3% this quarter as the slowing leasing market could not keep up with the new deliveries. Vacancy levels remain well below the 5.5% average over the last five years. As tenants are expected to remain cautious and the majority of the remaining 25 million SF of under construction volume is expected to deliver over the next few quarters, vacancy will continue to be pressured upwards. Asking rates have declined to $6.27/SF this quarter due to the slowing leasing market, matching the same rate from this quarter last year.