Market data shows that direct vacancy downtown over the past three months has been 12.4 percent, up from 12.3 percent in the second quarter, and up from 10.3 percent in the same period last year. The direct vacancy rate continues to climb to its highest mark in the past two and a half years.
The market also saw a 119,000-square-foot drop in leasing during the second quarter—a first since 2015 that the metric—known as net absorption—was negative. The increase in vacancy, however, did not deter average asking rents in the central business district from rising nearly 2 percent over the second quarter to $38.77 per square foot.
“As we wait for things to balance, pricing continues inching up,” said Bespoke Co-Founder and Managing Principal Victor Sanmiguel. “Monitoring absorption is critical, we’ve seen how an increase in leased square footage can negatively affect occupancy cost for tenants, and so, in these scenarios it becomes crucial to partner with commercial real estate professionals to negotiate the best deal for your business needs.”
This year, although there was a higher demand from tenants, it wasn't enough to keep pace with the increase in supply. Data shows that the Central Loop submarket largely weighed down net absorption during the third quarter with a drop-off of 184,562 square feet; while the West Loop contributed to increased demand, adding 171,677 square feet of leased space to the market.
However, new inventory isn’t the only factor inflating the vacancy rate, a new downsizing trend with a focus on decreasing costs or trading square footage for better amenities has many companies in various industries looking to reduce their footprint. According to market data, in the two years ended in third-quarter 2016, 80 percent of large law firms in Chicago that signed new leases downsized from their previous office space when renewing or signing new leases.
“We have worked with many clients looking to rightsize as a way to make their space a strategic business asset,” explains Sanmiguel. “We work with them to either find a smaller, more efficient space or negotiate aggressive abatement packages to help absorb extra space that may not be needed at the current time. We’ve found that there’s great opportunity for small to mid-size companies in older A and B class properties, as larger companies are fleeing to occupy new, more modern facilities.”
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.