Last year was undoubtedly an encouraging time for downtown commercial real estate, seeing office vacancy steadily decline and finish the year at its lowest level in roughly 16 years. With the market showing positive signs yet still somewhat wary from the Great Recession, many are left wondering if the boom can continue in 2017. A recent report by Crain’s poses this very question as it looks back at 2016 and forward to the year ahead.
Following seven consecutive quarters of declining vacancy, 2017 is expected to be more of a test for the downtown market, claims the article. This is primarily due to a handful of new office projects—notably the pair of 50-plus-story towers known as 150 N. Riverside and River Point—opening for business and filling up with new tenants.
The influx of new supply and the movement of tenants is anticipated to increase the amount of soon-to-be-vacant “shadow space,” an executive at CBRE tells Crain’s. While this potentially could have a softening effect on the market and tip things more in the favor of tenants over landlords, so far rents have remained strong—currently up 2.4 percent from the fourth-quarter of 2016.
Perhaps the real litmus test for 2017 will be whether the new office towers currently in the pipeline like 130 N. Franklin and 590 W. Madison can land the anchor tenants needed to kick-start construction. Unlike the much more speculative residential rental market, commercial projects typically require major pre-construction commitments before breaking ground. Movement on the aforementioned towers will be a story to watch in 2017.
Though the past several years have seen more companies move their offices downtown, Chicago’s traditional Central Business District is starting to face some hard to ignore competition. As the West Loop and Clybourn Corridor emerge as new hubs for office development, Chicago’s Loop is no longer the only game in town for prospective tenants.