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Market Research - Chicago
USA

United States: Chicago office market - H2 2021

Office market fundamentals softened significantly over the year, with negative 3.6 MSF of absorption. Looking forward, there are signs of optimism. Leasing activity accelerated over the second half of the year.

Office Market Softens, but Signs of Optimism Remain

Chicago’s economy has continued to improve since the pandemic hit the region in March 2020 and the unemployment rate dropped to 4.5% during November 2021. 
Office market fundamentals softened significantly over the year, with negative 3.6 MSF of absorption. Looking forward, there are signs of optimism. Leasing activity accelerated over the second half of the year. Increased deal volume bodes well for a stronger start to 2022 as tenants begin to occupy vacant office space. Rents are up across all asset classes. Class A space continues to outperform, registering positive absorption during the fourth quarter.

 

Rental rates remain firm

Asking rents continue to hold firm despite elevated vacancy. While landlords face increased exposure due to a softening market, tenant preference for well-located, amenity-rich Class A product should drive rents upward as new product delivers and conditions stabilize. 
Rents are up across all asset classes, but the most substantial gains have been in Class A assets with asking rates finishing the year at $45.58 PSF, up 4.0% YOY. Office rents are expected to continue to tick up over the next 12 months. Newer space will continue to achieve higher rent and more robust growth due to continued demand. However, older properties could feel downward pressure as these tenants vacate space for higher quality product.

 

Office investment accelerates

Chicago metro investment sales volume totaled $3.1 billion in 2021, up from the 2020 total volume of $2.3 billion. Pricing dipped to $175 PSF, down from $235 PSF in 2020. This decrease can largely be attributed to limited trophy/Class A inventory on the market. Well located Class A product remains in demand while the Class B market has seen the largest drop in sales volume. The number of investment sales is likely to increase as confidence in the market gains traction in 2022, although unlikely to reach pre-pandemic levels in the near future.

Chicago office Market - H2 2021
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