Chicago CBD office market report

Q2 2024

The dichotomy of the Chicago CBD office market continued in the first quarter of 2024, as high-quality, well-positioned buildings performed well while the lower-class segment of the market struggles. Capital market activity remains nearly inactive as economic and sentimental constraints remain unfavorable for many investors. Salesforce Tower welcomed the namesake company and Kirkland & Ellis for occupancy and Chase committed to stay in their Central Loop tower for the foreseeable future.

Chicago CBD tenants maintained or upgraded building classes

As the desire for space in high-class buildings continues among tenants leasing space, more than 20% of tenants over 10k square feet in the last six quarters moved to a higher quality building. While 74% stayed in the same class of building, often through renewals, these deals have usually come with large concession packages to entice leasing activity.
While contractions were more commonplace than expansions throughout the entire market, over half of tenants choosing to upgrade building class also expanded their footprint.

7 msf

Available sublease space

The amount of available sublease space has decreased by nearly 12.5% from the end of 2023. However, this reduction is mainly due to the expiration of underlying leases, which has shifted the space from sublease availability to vacant status, rather than an uptick in leasing activity. Only about 16% of the sublease space taken off the market was due to signed subleases. As a result, total availability, which accounts for both vacant and sublet space, continues to increase, now sitting at nearly 39 msf.


Commercial office loans maturing in the next two years

Office-backed loans have been a notable topic in CRE, with lender seizures and foreclosure proceedings of office buildings in Chicago making headlines. By number of loans, 43% of office-backed CMBS loans in the Chicago MSA that matured from 2020-2023 defaulted, were seized, or were foreclosed. In terms of dollar value, 26% of the total loan value met this fate. However, the past four years have accounted for almost 70% of the total commercial loan value maturing between 2020-2026. Beyond 2026, there is a much smaller pool of loan maturities, with most being underwritten with more temperate market expectations.

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