Q3 2023 Chicago Office Market Report

Vacancy in Chicago’s downtown office market jumped in the third quarter, hitting 23.6 percent, up from 22.6 percent in the second quarter. This is unwelcome news for landlords who are seeking some positive news in the face of mounting headwinds. Vacancy looks poised to further increase as the majority of tenants in the market look to downsize and create efficient real estate footprints.

No class of building was safe from vacancy increases as all types experienced an uptick in vacancy. Looking ahead, office landlords will feel increased pressure to retain and attract new tenants as lenders tighten their belts in an elevated interest rate environment. Overall leasing activity remains low, which is good news for the few tenants that are in the market and should benefit from intense landlord competition for their occupancy.

There is some light at the end of the tunnel relating to oversupply issues, via space demolition and repurpose, which are becoming more common in Chicagoland. Even as demand is expected to drift lower over the coming quarters, Chicago should be at the tail end of its largest supply wave in over a decade, with only 2.1 million square feet currently under construction.

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