COVID and out migration challenge Chicago
After falling to a low of 2.8% in December 2019, Chicago's unemployment rate jumped to 17.5% in April 2020 due to COVID-19 and the impact to the leisure/hospitality industry.
The rate has declined to 7% as of November 2020, but the decline is due more to people leaving the workforce to childcare responsibilities while distance learning remains in play for most Chicago schools.
Recovery will be challenged by the declining population. The state of Illinois lost over 51,000 residents in 2019 according to the Census, thus marking the 6th consecutive year of worker exodus. It is estimated that the state lost 80,000 residents in 2020, as final numbers have yet to be released.
Vacancy rate on the rise as tenants pause
The overall Chicagoland (CBD & Suburban) vacancy rate increased to 16.7% from 15.7% at year-end 2019. The rise in vacancy was due to several new construction projects hitting the market with vacant space as well as tenants pausing major lease decisions until the path forward with COVID-19 is clear.
Most tenants are opting to renew and sign short-term extensions. Although the vaccine is currently being rolled-out, it will take time for all residents to be inoculated and protected. Despite this, asking rents continue to rise, up 1.3% for prime space, supported by high concessions.
Office investment steady, but soft in 2020
Chicagoland, with its inevitable future tax liabilities are causing select investors to pause on Chicago investment due to the uncertainty. However, office investment sales remained steady during 2020, totaling less than $2.0 billion.
Notable transactions include 1045 W. Randolph Street trading hands to Normandy Properties for $412.5 million or $717 PSF and 905 W. Fulton Market trading to Deka for $85.5 million or $872 PSF.