Chicago economy lags in office using jobs
Total employment in the Chicago metro area increased by 26,997 jobs during the fourth quarter (between August and November 2017), representing a growth rate of 0.75%. Office-using industries, such as information, technology, financial activities, and professional and business services employment contracted by approximately 1,800 jobs at that same time. Year-over-year, the largest percentage of job gains locally have been in the construction sectors and financial activities sectors. Absorption rates of competitive office space are not expected to reflect quarterly total job losses in the near term, but may be influential upon current occupancy levels within the next year, if the loss of office using jobs continue.
Vacancy rates increase
The overall Chicagoland (CBD & Suburban) vacancy rate decreased to 16.5% quarter over quarter (a 40 basis point increase). Quarter over quarter, CBD total vacancy declined to 12.5% while total suburban vacancy fell to 21.3%. Decreases in vacancy are not expected to continue as existing buildings struggle to maintain tenants as another wave of new office inventory will flood the market this year.
Chicago CBD investment plateaued
Though national economic news is positive, with tax law announcements that will be beneficial to CRE investing, investor sentiment in office buildings ended the year on a modest note. Chicago ended 2017 steady in overall investment fundamentals but truncated in comparison to previous years. Part of the deal volume wane has less to do with interest lag and more to do with dollar values on single property office investments to be down.
Nationally, buyers and sellers are further apart than in previous years. In large markets such as Chicago, where prices are holding higher than other emerging markets, sales activity has waned in the Class A assets. Good news for sellers, Chicago has managed to keep its average prices relatively high at $136.54 as the average sales price PSF for Chicagoland and approximately $216 PSF for Central Business District.