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Market Research - Chicago

United States: Chicago office market - H1 2018

- Lowest employment rate ever
- Suburban vacancy drops significantly
- Chicago CBD investment aggressive

Lowest employment rate ever

The Chicago Metro unemployment rate decreased significantly from 5.3% (February 2018) to 3.3% (May 2018). This, in part, is not only due to job additions but a recalculating of the population of the metro area as there are reported population loses for three consecutive years. Chicago added 17,655 jobs in May alone, but in quarter over quarter comparison (February over May), there were less than a 100 job net additions to the Metro area. In year over year comparisons, however, the Financial Activities sector had a 2.3% increase in jobs, while the Professional Services sector had a 0.5% increase. Construction jobs also increased by 2.3% year over year.


Suburban vacancy drops significantly

The overall Chicagoland (CBD & Suburban) vacancy rate decreased to 15.7% quarter over quarter (a 30-basis point decrease). At the same time, CBD total vacancy increased to 12.0% from 11.8%. A trend that may continue as new constructions are pilfering tenants from existing inventory. Total suburban vacancy fell to 20.2% from 21.2% quarter over quarter. Suburban vacancy has been consistently dropping since early 2017, a good sign that suburban demand has gained some momentum.


Chicago CBD investment aggressive

Concerning capital markets, property cash flows have slowed but are still growing. Lender and investor caution provide some buffers against overheating, and borrowing rates remain attractive on a historical basis. With a boost from tax reform, we expect the economy to continue to expand through any uncertainty associated with midterm elections in the fall. High supply will be an issue for investors in the Chicago office sector as occupancy in existing buildings is expected to decrease with 2 million SF to be delivered by the end of the year, and over 6 million SF is still under construction in the CBD. The highest sales in Chicago in Q2 2018 was 175 W. Jackson Blvd, a 1.4 million SF Class A building which sold for $305 million ($210 PSF) and was 60% occupied at time of closing.


AAG Chicago office market H1 2018
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