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Market Research - Chicago
USA

United States: Chicago office market - H1 2017

- Chicagoland jobs are improving but not as dramatic as reported
- Vacancy rates decrease only slightly
- Investor interest shifting towards CBD class b and well-located suburban assets

Chicagoland jobs are improving but not as dramatic as reported

The U.S. Bureau of Labor Statistics readjusted its figures so Chicago area unemployment fell dramatically from reported figures of 5.1% in February 2017 to 4.1% in May 2017. Though political camps are touting this story as growth for Chicago, the job increase numbers, in reality, have not been dramatic. The story that is not being told is the readjustment in accounting for the mass exodus of people leaving Illinois, thus pointing to a declining labor force as opposed to job creation. Illinois state and local taxes rise while budget constraints continue to be a hold over the average taxpayer and business owner in Illinois. Yet, during these fiscal difficulties, concentrated efforts to improve Chicago’s transportation hub infrastructure and city amenities has made it competitive with other major cities on the coasts.

Vacancy rates decrease only slightly

The overall Chicagoland (CBD & Suburban) vacancy rate decreased to 16.8% quarter over quarter (a 10 basis point decrease). Quarter over quarter, CBD total vacancy decreased to 12.4% from 12.5% while suburban total vacancy decreased to 22.1% from 21.8%. Though Class A CBD direct vacancy decreased from 12.8% to 11.3% quarter over quarter, class B and sublease vacancy left on the market from movements to higher quality slowed the vacancy decreases overall.

Investor interest shifting towards CBD class b and well-located suburban assets

Confidence in the Chicago office market from foreign investors remains high at this juncture despite signs that we are reaching a tipping point in prices. Some domestic buyers have tapered off, looking for opportunity in secondary office markets and alternative product types, such as industrial & multifamily. From their vantage point, foreign investors (particularly China) see their capital in American assets as a good play in comparison to their economically volatile home countries. Well located Class B CBD assets are gaining more attention from value add and opportunistic investors. Nationally, office investors are looking toward suburban areas and second tier markets to provide higher yields and returns. This trend is showing in Chicago.

EOM 2017 chicago
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