The office space market in the Chicago suburbs is having a hard time due to the COVID-19 pandemic and the rise of remote work. In the second quarter of this year, companies vacated 180,000 square feet of office space, even though they signed leases for almost 500,000 square feet. This leasing activity was 46 percent less than in the first quarter of 2024. The vacancy rate in the suburbs reached a record high of 31.3 percent, up from 28.9 percent a year ago, marking the 14th straight quarter of high vacancy rates.
Record Vacancy Rates
Before the pandemic, the vacancy rate was 22.1 percent. Despite the availability of many offices for sublease, the total available space decreased by 15 percent due to an increase in lease deals. Since the start of 2020, the suburban office market has lost nearly 4 million square feet of leased space, more than during the Great Recession after 2008. This drop in demand, coupled with rising interest rates, has lowered property values and led to more foreclosures.
Notable Company Moves
Several significant companies have reduced their office space in the suburbs. Vyaire, a medical equipment maker, filed for bankruptcy and left 63,000 square feet empty in Mettawa. Aon reduced its office space by over 550,000 square feet, moving from Lincolnshire to Bannockburn. Advocate Aurora Health vacated 185,000 square feet in Downers Grove after merging with Atrium Health.
Downtown and Industrial Market Update
Downtown Chicago is also facing office space challenges, with a loss of 2.2 million square feet so far in 2024, 70 percent lower than the same period last year. Only 1.5 million square feet of new leases were signed, a quarter of last year’s volume. The overall vacancy rate downtown is 23.1 percent.
In contrast, the industrial real estate market in the Chicago area did well in the second quarter. Three large leases, each about 1 million square feet, were signed by Samsung, Post Consumer Brands, and Amazon. This brought the total leasing volume to 10.2 million square feet, up from 7.4 million square feet in the first quarter. Industrial property rents in the Chicago area reached a new high of $7.50 per square foot, up from $7.06 in the first quarter. This demand for large warehouse space resulted in a net absorption of 4.3 million square feet in the second quarter, a significant increase from 47,000 square feet in the first quarter.
