Chicago’s Downtown Office Vacancies Have Reached a New 4 Year High.
Posted by ChicagoismynewBlog! on April 3, 2010
(Crain’s) — The downtown vacancy rate has made its biggest leap in seven years, as a sharp drop in demand was compounded by the completion of yet another office project.
The vacancy rate spiked to 14.9% during the first quarter, compared to 13.8% during the fourth quarter and 11.5% during the first quarter of 2009, according to a report by the Chicago office of real estate firm CB Richard Ellis Inc.The jump of 1.1 percentage points is the largest single-quarter increase since the fourth quarter of 2002, when the vacancy rate climbed 2.1 percentage points, to 12.9%, in the wake of another recession.
The vacancy rate has climbed for six consecutive quarters and now stands at the highest level since first-quarter 2006, when the vacancy was 15.1%. During the last decade, the vacancy rate peaked at 16.0% at the end of 2005.
Yet in a hopeful sign, the amount of sublease space fell during the first quarter, the first decline in two years, prompting some landlord representatives to think the worst may be over.
“I think we have nudged off the bottom,” says landlord rep Robert Gillespie, a senior vice-president with CB Richard Ellis. “I am not suggesting that we are on a sharp V-type of recovery, but we are on an upward trajectory.”
Including sublease space, the overall vacancy rate shot up to 17.1% during the first quarter, compared to 16.2% during the fourth quarter and 13.3% during the first quarter of 2009, CB Richard Ellis says.
The increase in overall vacancy is the largest single-quarter jump in five years.
Demand for downtown office space plunged by more than 700,000 square feet during the first quarter, the fourth time during the past six quarters that demand has fallen. The drop in demand is the biggest single-quarter decline since the fourth quarter of 2002.
Demand is measured by net absorption, the change in the amount of leased and occupied space, compared to the previous quarter.
Mr. Gillespie says that first-quarter demand reduction is the result of corporate decisions made six to nine months ago.
But tenant representative Daniel Arends says he expects the vacancy rate to rise another full percentage point this year, adding, “There just doesn’t seem to be a lot of demand.”
More than half of tenants with leases coming due are renewing, compared with just 30% to 35% in 2008, says Mr. Arends, a principal in Rosemont-based Colliers Bennett & Kahnweiler Inc.…