2015 ended in a flurry of office leasing, culminating in a seven-year low vacancy of 14.8% downtown, according to the latest reports from Savills Studley. Savills Studley EVP Robert Sevim says downtown leasing activity totaled nearly 10M SF last year, crushing long-term annual statistics. Robert sees no sign of a major slowdown this year, but is taking a wait-and-see approach to Q1 and Q2 to determine emerging patterns. What is known: few of the notable projects in the pipeline are changing course. Tech companies are shifting to scaled phases, considering every seat and SF before signing leases. Robert also sees golden opportunities in backfills. Larger chunks of multi-floor space are becoming vacant as tenants move to new construction projects. Some of the larger blocks will be offered on a fragmented basis and tenants will benefit from competitive transaction terms. He predicts there will be great opportunities—for tenants with leases expiring in 2017 and 2018, especially.
The suburbs are more of a mixed bag. Savills Studley managing director Jon Azulay says overall rents held steady at $22/SF, while Class-A rates ($25.01/SF) marked a 2.5% increase for the year. Jon says the strongest markets continue to be in the north suburbs, which have a large concentration of growing pharmaceutical companies; O’Hare, which benefits from tenants desiring a Chicago address and train access; and Oak Brook, with a solid mix of great access and buildings. Jon hesitates to call the suburbs a landlord’s market, though. He says while face rates may be up, higher tenant concessions have resulted in lower net effective rents. And office leasing dropped to 1.3M SF in Q4, 20% below the historic average. Some markets are struggling, like Schaumburg, which is reeling from the loss of Motorola, and Lisle, where Navistar is seeking a tenant for at least half of its 1.2M SF HQ.
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