Vacancy rates and rental rates in Chicago’s rise office market rose during the first quarter of 2023, according to Bradford Allen. The CBD’s direct vacancy rate reached a record-high 19.8%, up from 18.9% in Q4 of 2022, while the average gross asking rate neared $43 per square foot.
Rising property taxes and operating expenses are primarily driving gross rents higher “more so than anything to do with rising demand,” Bradford Allen reported. Before the pandemic, net rents made up more of overall rental payments; however, increasing costs for materials & labor along with inflation have led to an increase in operating expenses, and higher real estate taxes for commercial buildings have resulted due to changing economic conditions within the city.
The combination of sublease inventory growth plus owners struggling to lease dated office products has caused a rise in distressed assets and foreclosures leading to negative absorption levels that more than doubled year-over-year during Q1 .
