Downtown's Office Market Was Looking Healthy, Until The Bottom Dropped Out
Downtown Chicago offices have been mostly empty for the past several weeks after Gov. J.B. Pritzker issued a stay-at-home order that shuttered nonessential businesses. The recent extension of that order to the end of April, and worries that the coronavirus may keep spreading in the spring and summer, makes 2020 the office market’s most uncertain year in memory.
"It's very hard right now to predict where the market is heading," Savills Vice Chairman Eric Feinberg said. "Except to say there is going to be a repricing, and the market will deteriorate from where it is now."
But up until the mid-March shutdown, downtown office leasing had been steady, according to a new report from Savills. Tenants leased about 3.3M SF in Q1 until the market stalled, and demand was spread out across several submarkets. Nearly a third of the leasing activity was in the West Loop alone, while 27% occurred in the Central Loop and nearly 20% in River North.
Fulton Market saw the quarter’s largest transaction, when Aspen Dental Management leased nearly 197K SF at 800 West Fulton St., a new building set to open in early 2021. PayPal renewed for almost 150K SF at the Merchandise Mart, and Faegre Drinker Biddle & Reath committed to 105K SF at BMO Tower.
Overall availability in the downtown increased 50 basis points in the first quarter to 16%, according to the Savills report.
Where that number is likely to go in the second quarter, or where it goes if there is a recovery in the aftermath of the crisis, is unknown. Some companies may decide to ditch open offices in favor of more private offices, and adjust their space needs. Some companies may decide to disperse their workforces, moving some employees out of hard-hit areas like New York, which could benefit Chicago, Feinberg said.
"There are a lot of questions, and I don't think we can put forward any hard numbers yet."