The State of the Chicago Office Market


The State of the Chicago Office Market

Our Chicago real estate data for Q2 2021 tells a story of the market as a whole, however, the current market climate heats up and cools down depending on what the statistics are benchmarked against. In general, the Chicago commercial real estate market is in recovery mode, but the progress has been slow.

It’s to be expected considering the Chicago area was more impacted by the pandemic than other markets. The numbers support there’s still a lot of recovery to go.

As employment numbers go back up it’s still uncertain how the office rental market in Chicago will fare given that continued remote work will likely suppress demand. Industries in the metro are also in flux, which will have an effect across asset classes.

Now more than ever investors and portfolio managers in corporate real estate need the capability to benchmark analytics across the Chicago metro, comparable markets and the nation as a whole to ensure they are making the best CRE investment decisions during the recovery.

Chicago Market Overview for 2021

During the pandemic, Chicago’s commercial real estate market suffered some substantial blows. Employment statistics are one clear indicator that the Chicago area was hit harder than most. Across the nation employment was down 7% in 2020, but in Chicago it declined by 8.7%. It was an early sign that 2021 would be a difficult year in the market.

While employment is picking back up, travel and tourism isn’t near the 2019 levels yet. Some of the jobs in those sectors likely won’t come back, but there is strong potential for growth in warehousing and distribution. Chicago’s infrastructure and location make it a market that can benefit as e-commerce continues to grow.

The data for Q2 2021 suggest that Chicago is in recovery, but it’s got a long road ahead of it and the commercial real estate landscape won’t look the same.

Asking and Effective Rent

The second quarter of 2021 saw fairly stable asking rent. The average dipped just 0.1% compared to the previous quarter. However, the year-over-year average was down 0.4%. Despite the downward turn, the 10-year comparison is still positive. The average asking rents across the metro are 1.7% higher than Q3 2011.

The average asking rent is down in Q2 2021 to $32 a square foot.

Effective rent went down in June of 2021 to $24.33 a square foot on average.

The average vacancy rate during Q2 2021 increased to 19.7%.

This deceleration in rent growth is something that is being seen across the Chicago real estate market. All 13 office submarkets have experienced a decline.

Desk and Cost KPIs

When key performance indicators (KPIs) are analyzed there’s an opportunity to use benchmarking to gauge how things are progressing as we look forward to the post-pandemic era in Chicago commercial real estate. The commercial real estate market statistics below are traditional KPIs for Chicago.

The cost per desk traditionally is $8,427.

The size per desk was 196 square feet on average.

The cost per Full Time Equivalent (FTE) traditionally is $8,378.

The size per Full Time Equivalent (FTE) is 195 square feet.

Each of these KPIs can be used as a benchmark moving forward. They can provide insight on efficiency and performance of a commercial property today compared to pre-pandemic. It’s important to remember that revenue per FTE is driven by outside market forces. When revenue is down the costs have to follow suit, and that can be controlled by improving efficiency and performance.

Peril Ahead for Rent and Vacancies

One of the market forces that will likely have a negative effect on Chicago’s office market is the move to remote work. As more businesses make remote work permanent for some employees, it’s decreasing demand for office space and putting downward pressure on rental rates as the vacancy rate increases.

The CRE data doesn’t look good for Chicago as we move into 2022. With an average vacancy rate of 19.7% and a 2% decline in effective rents year-over-year in Q2 2021 the numbers aren’t encouraging as the market finds its footing. Our predictive analysis of the data suggests that effective rents will be 4% below pre-pandemic averages by the beginning of 2022.

Delta Variant Concerns

Making business decisions during the pandemic has been extremely difficult for businesses of all sizes. Just as corporations and small businesses alike planned a return to the office the Delta variant renewed concerns over safety. This has further strained the office market and delayed the recovery in that sector by at least a quarter.

Commercial real estate statistics from CBRE and other commercial real estate firms put the decline in perspective. At the end of Q2 2021 the downtown office vacancy rate was 17.7%. That’s the highest vacancy rate on record in 15 years. When subleases are factored in the vacancy rate jumps closer to 21.7%.

Investors and portfolio managers should consider the potential for future disruption and which assets are most susceptible as we move out of the pandemic. Some markets, like office rentals, are going to have a slower recovery than others due to safety concerns and limitations.

Chicago Submarket Commercial Real Estate Analysis

When we look at real estate property data and statistics by zip code and submarkets in Chicago it paints a clearer picture for managing an investment portfolio. Areas with the highest concentrations of office space include:

  • West Loop – 18.4% of the metro’s office space is in this submarket.
  • West – this submarket accounts for 15.5% of competitive office space.
  • Northwest Suburbs – 14.8% of the metro’s office space is located here.

However, concentration doesn’t always equate to competition that drives up rental rates. When analyzing asking rents we find that the three highest performing submarkets are:

  • West Loop – The average asking rent in West Loop was $43.16 per square foot.
  • River North – The average asking rent in River North was $39.15 per square foot.
  • North Michigan Avenue – The average asking rent in North Michigan Avenue was $39.03 per square foot.

However, no office space submarkets had an effective rent above $33 a square foot and the average was around $29 across the six submarkets included in the Chicago Market Report. The concessions will likely continue into Q3 given that the 1.1% increase in Chicago’s job growth hasn’t been significant, and there’s been a decline in household income growth by 6.7%. Both of these KPIs are 0.1% below the national average.

West Loop

West Loop has the distinction of being the largest office space submarket in the Chicago metro. The submarket has 47.9 million square feet of office space, which makes up 18.4% of the area’s inventory. The active West Loop market is faring better than other submarkets in terms of vacancies. In Q2 2021 the vacancy rate was 12.3%, well below the metro average for the same period. It was an improvement of 90 basis points since Q1 2021. West Loop’s vacancy rates are up compared to 2009, but historically vacancy rates are far below the average from 2006 to 2018. More importantly, the vacancy rates are expected to remain steady or decline slightly in the coming years without a drop in the average asking rent.

The commercial real estate market statistics for rent averages aren’t quite as strong. The average asking rent in West Loop was $43.16 during Q2 2021, down 0.7% since the previous quarter. While this is the highest average across all 13 Chicago real estate submarkets, it’s a year-over-year decline of 1.5%. The average asking rent growth in June 2021 was negative while it went up by 0.1% for the market as a whole.

The effective rent per square foot rate wasn’t any more encouraging. It was down 1.1% in West Loop compared to Q1 2021. This is likely an effect of the Delta variant that surged during the quarter. It also suggests that property owners had to offer lessees more concessions to keep vacancy rates down in Q2.

East Loop

East Loop commercial real estate data shows that this area of Chicago had higher than average asking rent and lower than average vacancy rates. During Q2 2021 14.8% of the 20.7 million square feet of office space in East Loop was vacant. The average asking rent for occupied space was $35 a square foot.

The East Loop submarket represents 7.9% of the total office space in the Chicago metro. Like other submarkets, East Loop experienced a notable slowdown in June that limited asking rent growth to just 0.1% in Q2 2021. While the growth managed to remain positive quarter-over-quarter, average asking rent had dropped 0.2% year-over-year.

Commercial real estate statistics on the effective rent rate show that rates are above average for the Chicago market and were slightly higher in Q2. During the quarter the effective rent rate rose by 0.5% to $25.41 per square foot. After analyzing the commercial real estate market data it appears that there’s demand in East Loop and landlords aren’t having to make the concessions to tenants that are made in other submarkets to keep vacancies under control, calming financial institutions and real estate professionals alike.

While asking rent has slowly increased in East Loop over the last 15 years, the vacancy rate has remained fairly steady with rates fluctuating between 12-15%. Q2’s average vacancy rate is higher than the same time in 2019, but it’s in line with rates from 2016-2018.

South Loop

The South Loop submarket contains 2.6% of Chicago’s office space. There’s 6.8 million square feet total with a vacancy rate of 19.1% in Q2 2021. The 12-month statistics have been encouraging as the asking rent grew by 3.2% overall, but Q2 signaled a slow down. In the 12-month period the asking rent went from $33.91 to $35. However, the momentum fell off in Q2 and there was a 0.1% decline in rents.

South Loop is the perfect example of how different benchmarks can help investors and portfolio managers get a better gauge of how a property or submarket is performing. Quarter-over-quarter CRE statistics for South Loop tell a slightly different story when benchmarking against the metro as a whole. When compared to the performance of all 13 submarkets South Loop is performing well with asking rents well above the $32.12 CRE industry average for the metro.

Effective rents were also positive in South Loop during Q2 2021. They grew to $28.15 in June, which was an increase of 0.4%. With asking and effective rents on the rise, South Loop is one of the submarkets where landlords appear to have more bargaining power with brokers.

Based on the historic vacancy rates in the last 15 years, landlords in South Look can look forward to higher than average rent rates for the metro, but the tradeoff is vacancy rates that could end up being higher than average as well.

River North

The River North submarket was positive in Q2 2021. The area contains 12.7 million square feet of rental space, which represents 4.9% of the total metro market. Here again is a situation where the quarter-over-quarter commercial real estate statistics read a little differently than benchmarking across the metro.

Compared to the market at large, River North has performed well. The asking rent rate is $39.14 a square foot, more than 20% better than the metro average of $32.12. The average asking rate increased by 0.4% in Q2, which is far better than the metro increase of 0.1%. But compared to the previous year, asking rents declined in River North by 0.7% in Q2. In Q2 2020 the average asking rent was $39.41.

Effective rents also fell by 0.1% in Q2 2021 suggesting that more concessions are being made to keep vacancy rates low. And the vacancy rate is very low compared to most of the Chicago metro. During Q2 2021 River North had a vacancy rate of just 11.6%. But investors and portfolio managers should note the vacancy rate in River North was up by 70 basis points since Q1 2021.

North Michigan Avenue

North Michigan Avenue is also enjoying higher than average asking rents compared to the Chicago real estate statistics as a whole. Unlike other submarkets, June 2021 didn’t represent a downturn in asking rent rates. Instead there was an increase of 0.2%, which brought the Q2 totals up overall. However, the asking rate was still lower year-over-year by 0.3%. Still at $39 a square foot, the asking rent is still well above the metro average of $32.12.

The better commercial real estate data for North Michigan Avenue was the effective rent rate. It was up by 0.3% in Q2 to end the quarter at $28.60 per square foot.

With 10.3 million square feet of space, North Michigan Avenue contains 4% of the rental market in the Chicago metro. Much of that space was leased during Q2 2021. The vacancy rate was 10 basis points higher compared to Q1 2021, but it was still much lower than other submarkets at 10.7%. This is good news, especially paired with the rising effective rent rates.

Benchmarking Insights Within the Chicago Real Estate Data

The Chicago real estate data within the Q2 2021 report reveals several benchmarking insights that are of use to investors, portfolio managers, and brokers that are determining if it’s the time to expand in the Chicago market or focus on other assets outside of office rentals.

Tenant Improvements

Tenant improvements were up significantly in Q2 2021, particularly in Chicago’s largest submarkets. The averages at the end of Q2 2021 were much higher than the five years preceding the pandemic.

  • Tenant improvements for new leases in 2015-2019 averaged $31.15 a square foot.
  • Tenant improvements for new leases in the first half of 2021 averaged $44.24 a square foot.
  • Tenant improvements for renewed leases in 2015-2019 averaged $21.69 a square foot.
  • Tenant improvements for renewed leases in the first half of 2021 averaged $31.33 a square foot.

When benchmarking against national averages you’ll find that the tenant improvements in the Chicago metro are well above average.

Free Rent and Lease Terms

Chicago real estate data on free rent concessions and lease terms shows that landlords are offering more to get less. In the first six months of 2021 free rent offered to tenants was up from 3 months in 2019 to 3.7 months. At the same time lease terms have decreased from 4.7 years pre-pandemic to 4.4 months at the end of Q2 2021.


From an employment standpoint, the Chicago metro has a lot of recovering to do. The employment rate across the area fell more than the national average. While the U.S. as a whole saw a 6.99% decline in employment in 2020, Chicago’s employment rate dropped 8.74%. Current job numbers show that employment grew by 4.06%, but job growth in Q2 2021 lagged behind the nation by 1.2% so improvements still need to be made to get people back to work.

Looking for More Commercial Real Estate Data and Insights?

Investors and portfolio managers can get the complete Chicago Office Report for even more in-depth look at Q2 2021. If you’re ready to level up your real estate portfolio strategy with access to a world of unbiased data and analytics across other markets, explore RefineRE’s Markets Module.

Markets from RefineRE helps identify commercial leases that are over or under market while calculating potential risk and cost savings. This all helps your team gain visibility into detailed corporate lease comparisons and access general market data reporting tools to stay up to date on performance trends across your portfolio.

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