New Deliveries Will Test Office Leasing Market In 2018
Downtown office leasing ended Q1 strong, bringing the direct vacancy rate in the central business district to 11.88%. MB Real Estate's Q1 CBD market report notes this is a drop of 38 basis points. The East Loop continues to experience historic performance. Direct vacancy reached a record-low 11.7%, a drop of nearly one percentage point.
There were 13 large new leases signed, and 17 major renewals, expansions and sublease deals, in 2018's first three months. The most notable deals included Morgan Stanley's 125K SF lease at Willis Tower, Citadel's 418K renewal at its namesake tower and Publicis' expansion and renewal at 35 West Wacker.
The vacancy rate is expected to climb with the deliveries of CNA Center at 51 North Franklin, White Oak Realty's 625 West Adams and two Sterling Bay projects: 210 North Carpenter and McDonald's new headquarters at 1045 West Randolph. Those four developments will add 2.1M SF to downtown office inventory.
Sublease space in the CBD is tightening. Sublease inventory decreased by nearly 342K SF in Q1 to 2.7M SF, the lowest amount since 2007. Average rent for new deals was $23.29/SF across all asset classes, while net renewal rents averaged $20.40/SF.