Could a slowing market give Chicago-area tenants the upper hand?
The completion of two big riverside towers at 444 W. Lake St. and 150 N. Riverside Plaza has caused a surge in supply that is exceeding demand, driving the downtown vacancy rate from 11.3 percent a year ago to 13.6 percent in the third quarter, industry data shows. Since demand for downtown office space still remains strong, as companies expand and continue to move their offices from the suburbs to the city, the increased supply on the market may negatively impact owners of less expensive Class B and C buildings more so than those of more modern facilities.
Another factor worth watching is the Chicago-area commercial property sales, which have dropped to $9.8 billion in the first eight months of the year, a 20 percent decrease from a year earlier, according to Real Capital Analytics, a New York-based research firm. Investors have been hard-pressed to find deals that make financial sense as property prices continue to rise.
The lack of buyers willing to purchase properties at such high prices has forced owners of several larger buildings, including the 509-unit Wolf Point West apartment tower, to pull them off the market. Some landlords have just refinanced some of their properties instead of selling, taking advantage of better loan terms.
“If supply continues to exceed demand, this could benefit tenants and place them in advantageous positions, which hasn’t happened in a long time,” said Bespoke Co-Founder and Managing Principal Peter Billmeyer. “We are readily waiting for the pendulum to swing back a bit more to the tenant side. We look forward to an increase in downward pressure on rates and most importantly a easing of securitization in the city specifically.”
Bespoke analyzes real estate transactions and markets to comprehensively study “supply and demand” to ensure numerous opportunities and favorable terms for our clients. By creating a competitive bidding process, we place clients in an advantageous position specific to their desired needs; and by making decisions together, we ensure optimal outcomes not only for today, but also for the future.