{"id":1004731742,"date":"2024-10-09T08:02:30","date_gmt":"2024-10-09T16:02:30","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004731742"},"modified":"2024-10-14T07:11:13","modified_gmt":"2024-10-14T15:11:13","slug":"chicago-office-buildings-trade-for-less-development-slows","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/chicago-office-buildings-trade-for-less-development-slows\/","title":{"rendered":"Chicago Office Buildings Trade for Less, Development Slows"},"content":{"rendered":"\n

<\/p>\n\n\n

\n
\"A<\/a>
The office building at 919 W. Fulton St. in Chicago’s West Loop is among the very few recent ground-up developments. The project also included an adjacent, six-story residential building. Image by Neoscape, courtesy of Fulton Street Cos.<\/em><\/figcaption><\/figure><\/div>\n\n\n

Chicago\u2019s office fundamentals didn’t show signs of improvement year-over-year through August, except for its sales volume, which has increased since last year. Developing headwinds continue to put pressure on the sector and some owners are trying to minimize their exposure, leading to swaths of office space being divested.<\/p>\n\n\n\n

Others look to conversions as a means to address the fundamental shift in how office buildings are utilized and repositioned. Far from being a catch-all solution to the sector\u2019s woes, office-to-residential redevelopment<\/a> can be a good avenue for some owners to capitalize on these shifting trends.<\/p>\n\n\n\n

CommercialEdge recently released the Conversion Feasibility Index<\/a>, a proprietary tool that offers scores assessing the potential for an office building\u2019s conversion to residential. Chicago has around 18.6 percent of its office space in buildings that have a high potential for such adaptive reuse, putting it around the top of the list nationwide.<\/p>\n\n\n\n

Pipeline decreases, large projects are few and far in between<\/h2>\n\n\n\n

As of August, Chicago\u2019s office construction pipeline dropped significantly to just 811,394 square feet, or 0.3 percent of stock\u201470 basis points behind the national rate. There is still demand for high-quality product, those developments tending to have significant preleasing activity.<\/p>\n\n\n\n

Among its peer gateway office markets, Chicago\u2019s rate of construction as a percentage of stock was the lowest. Boston led with 4.4 percent, followed by Miami (3.9 percent). On the lower end were Manhattan (0.6 percent) and Los Angeles (0.9 percent).<\/p>\n\n\n

\n
\"Photo<\/a>
Sterling Bay secured a $206 million construction loan from Bank OZK in 2022 for the development of its 500,000-square-foot office property at 360 N. Green St. Photo courtesy of CommercialEdge<\/em><\/figcaption><\/figure><\/div>\n\n\n

Fulton St. Cos.\u2019 919 W. Fulton was the largest office project underway, taking shape in the West Loop submarket. The developer topped out its $300 million development<\/a> earlier this year, with 112,000 square feet out of its 409,000 already preleased to Harrison Street Real Estate Capital.<\/p>\n\n\n\n

About 1.1 million square feet of office space came online in the metro year-to-date through August, across nine properties. Nearly half of this space was in a single project, as Sterling Bay completed its 25-story tower at 360 N. Green St. The 500,000-square-foot office building is also in Chicago\u2019s West Loop, and has a tenant that preleased a large portion of the property. Boston Consulting Group will use it as its Midwest headquarters.<\/p>\n\n\n\n

Sales volume grows, but assets depreciate<\/h2>\n\n\n
\n
\"Photo<\/a>
The 867,821-square-foot office building at 333 W. Wacker Drive came online in 1983 and went through several cosmetic renovations since. Photo courtesy of CommercialEdge<\/em><\/figcaption><\/figure><\/div>\n\n\n

Chicago investors traded $699 million in office assets year-to-date through August, 47.6 percent more than the volume recorded the same period last year. A total of 62 properties, encompassing 12.5 million square feet, changed hands for an average of $92.6 per square foot, nearly half the $168.8 national figure.<\/p>\n\n\n\n

Chicago office buildings sold for the least amount per square foot when compared to peer gateway markets. On the higher end of that spectrum were Los Angeles ($423.4 per square foot) and Manhattan ($370.6 per square foot).<\/p>\n\n\n\n

In June, Beacon Capital Partners acquired the office tower at 333 W. Wacker Drive for $125 million. This was the largest single-asset sale year-to-date through August, with the building trading at roughly $144 per square foot. The new owner also secured a $185 million acquisition and development loan from Allianz. Notably, the asset had previously changed hands in 2015 for $320 million.<\/p>\n\n\n\n

This trend was present in virtually all major transactions that closed in the first eight months of the year. Of the top five office building sales across metro Chicago, all except one\u2014which traded for the first time\u2014changed hands for at least 50 percent less than their previous sale value.<\/p>\n\n\n\n

Office vacancy grows year-over-year<\/h2>\n\n\n\n

Office vacancy in metro Chicago increased 120 basis points year-over-year to 19.0 percent as of August, 40 basis points below the national figure. Compared to gateway markets, only San Francisco\u2019s 27.6 percent was higher than Chicago\u2019s.<\/p>\n\n\n\n

A few significant leasing deals took shape at the start of the year. In January, financial services company Mesirow signed an extension at Heitman\u2019s office tower<\/a> in Chicago’s CBD, at 353 N. Clark St. The tenant downsized its footprint to 100,000 square feet and agreed to a 10-year lease. <\/p>\n\n\n\n

In February, Pinterest signed a 24,000-square-foot agreement<\/a> at Hines and Ivanho\u00e9 Cambridge\u2019s office campus in the West Loop. JLL represented the tenant.<\/p>\n\n\n\n

Shared space solutions gain ground<\/h2>\n\n\n
\n
\"Exterior<\/a>
Two Pru rises 58 stories at 180 N. Stetson Ave. Image courtesy of CommercialEdge<\/em><\/figcaption><\/figure><\/div>\n\n\n

In August, Chicago\u2019s coworking footprint amounted to more than 6.2 million square feet, or 1.9 percent of its entire office stock. The national figure stood at 1.8 percent, while a few peer gateway markets exceeded Chicago\u2019s rate\u2014Miami (3.7 percent), Manhattan (2.3 percent), Los Angeles (2.1 percent) and San Francisco (2.1 percent).<\/p>\n\n\n\n

Regus is one of the largest operators in Chicago\u2019s coworking market, with nearly 985,000 square feet across 45 locations. It recently ceded one of those to Expansive\u2014the shared space provider leased the 35th floor at Two Pru<\/a> at 180 N. Stetson Ave., its seventh location in the metro. Expansive previously had slightly more than 487,000 square feet of shared office space across six locations.<\/p>\n\n\n\n

The other large providers with significant footprints were WeWork, with 474,000 square feet across eight locations, Industrious with 360,000 square feet and eight locations and Convene, which had three locations encompassing 315,000 square feet.<\/p>\n","protected":false},"excerpt":{"rendered":"

Find out the latest updates on this market, according to CommercialEdge data.<\/p>\n","protected":false},"author":1284,"featured_media":1004683954,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1491,22251,52420,13,21742,21747],"tags":[51047,50674],"class_list":["post-1004731742","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-chicago","category-in-focus","category-market-updates","category-midwest","category-latest","category-office","tag-marketupdate","tag-commercialedge"],"acf":[],"yoast_head":"\nChicago Office Buildings Trade for Less, Development Slows - Commercial Property Executive<\/title>\n<meta name=\"description\" content=\"CommercialEdge data reveals the latest developments across Chicago's office market fundamentals through the first eight months of the year.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/chicago-office-buildings-trade-for-less-development-slows\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Chicago Office Buildings Trade for Less, Development Slows\" \/>\n<meta property=\"og:description\" content=\"CommercialEdge data reveals the latest developments across Chicago's office market fundamentals through the first eight months of the year.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/chicago-office-buildings-trade-for-less-development-slows\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2024-10-09T16:02:30+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2024-10-14T15:11:13+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2023\/10\/919-W-Fulton-St.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"900\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Tudor Scolca\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/chicago-office-buildings-trade-for-less-development-slows\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/chicago-office-buildings-trade-for-less-development-slows\/\",\"name\":\"Chicago Office Buildings Trade for Less, Development Slows - Commercial Property Executive\",\"isPartOf\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/chicago-office-buildings-trade-for-less-development-slows\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/chicago-office-buildings-trade-for-less-development-slows\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2023\/10\/919-W-Fulton-St.jpg\",\"datePublished\":\"2024-10-09T16:02:30+00:00\",\"dateModified\":\"2024-10-14T15:11:13+00:00\",\"author\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/#\/schema\/person\/daae3daa7b99fdfb75a85cb3cd92a26d\"},\"description\":\"CommercialEdge data reveals the latest developments across Chicago's office market fundamentals through the first eight months of the year.\",\"breadcrumb\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/chicago-office-buildings-trade-for-less-development-slows\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.commercialsearch.com\/news\/chicago-office-buildings-trade-for-less-development-slows\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/chicago-office-buildings-trade-for-less-development-slows\/#primaryimage\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2023\/10\/919-W-Fulton-St.jpg\",\"contentUrl\":\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2023\/10\/919-W-Fulton-St.jpg\",\"width\":1200,\"height\":900,\"caption\":\"The project at 919 W. 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