Flight to quality, landlord concessions, and CMBS loans pressure market, but opportunities abound

Avison Young releases Q1 2023 Chicago CBD Market Report

Chicago, IL – Avison Young today released its First Quarter 2023 Office Market Report for Chicago’s Central Business District (CBD). The report indicates that vacancy in trophy buildings has decreased to 7.5% as the flight to quality which has persisted for three years continues, the average spread between base rent and net effective rent provided by landlords to maintain office demand has risen to 18.2%, and that 50% of CMBS loans remain in good standing, adding pressure to the market.

“Despite a rocky start to 2023, we will continue to uncover beneficial opportunities for both occupiers and owners as the market continues to adapt to current conditions,” said Damla Gerhart, Principal and Managing Director of the firm’s Chicago office. “Tenants are still focused on luring their workers back to the office by making upgrades to the work environment and being purposeful in how they foster connectivity amongst their people.  Landlords are still enticing occupiers with large concession packages and continue to focus on upgrading amenities that support the experience workers now want to have when they come into the office.”

Avison Young reports that six properties are currently under construction and over two million-square-feet (msf) are currently under construction or renovation – both representing only 1.3% of office inventory. As vacancies and interest rates continue to rise, a significant number of buildings have either been watch-listed or special serviced as their loans approach maturity.