United States: Chicago office market - H1 2026
Though the Chicago office market remains in recovery, a growing mismatch has emerged between supply and demand for large blocks of high-quality space
Early Signs of Stabilization
The direct vacancy rate decreased 20 basis points to 23.2% in the second quarter of 2026, marking the first decline in 26 quarters. Net absorption was 250,127 SF, which was the first positive absorption in the market since the second quarter of 2023. Overall leasing activity continues to lag pre-pandemic norms. However, the market is beginning to see more tenants expanding than contracting, a trend that should support recovery in the coming years.
Possibility of New Construction on the Horizon
Though the Chicago office market remains in recovery, a growing mismatch has emerged between supply and demand for large blocks of high-quality space. At least 10 tenants are currently in the market for more than 100,000 SF. The continued flight to quality has left the best buildings with minimal available space, forcing many large tenants to renew in place. As tenants seeking trophy space, particularly high-rise trophy space, find limited options, demand may support an increase in new construction over the coming years. The net rents required to support new construction would represent a premium of $20 to $30 above the market's current highest rents, a threshold that, once reached, should bring considerable confidence back to the market.
Office Investment Market Nears Rock Bottom
Distressed sales continue to account for most of the investment activity in the Chicago CBD. The pace of these sales has increased, however, as pricing has adjusted to reflect significant losses in value. Lenders are increasingly motivated to remove distressed assets from their books, and low pricing has drawn a growing pool of investors into the market.