|The office market needs a few more quarters before fundamentals come together and make the case for new building.|
Yes, plans for two CBD office towers were announced in Q4 (Alter Group and White Oak Realty's 625 W. Adams and Trammell Crow's 301 S. Wacker), but MB Real Estate's Krysta Balsvik says large blocks of Class A space are still available, and only seven companies are looking for 200k SF or larger. The only impetus for building a new tower like 625 W. Adams, which is awaitingfinancing, is by demand of one of those companies or a consortium of smaller ones. Construction typically takes seven to 14 quarters, so delivery would be three to four years away, Krysta says. Q4's286k SF of net absorption was a pleasant surprise, but shadow vacancy, lack of job creation, and fewer SF per worker translate to several more quarters of big vacancy.
|Even though the largest lease last quarter was a sublease (Northern Trust took 207k SF from Bank of America at 231 S. LaSalle, above), total sublease space increased, and it'll hit the books as direct vacancy as leases expire. So where is vacancy improving? TheWest Loop (18.2% vacancy) offers easy access to public transit from the 'burbs via Metra, and River North (16.9% vacancy) has two new highly leased towers, Krysta tells us. The East Loop and North Michigan Ave. are struggling with 23.7% and 20.3% vacancy, respectively. Some East Loop buildings provide shuttle bus service, but it just can't replace public transit.|