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Downtown office market slows in Q1: report

Downtown Chicago and Eric Feinberg (Credit: Franck Michel via Flickr and Savills-Studley)

Leasing in the city declined and rent growth slowed in the first quarter, raising questions for the downtown office market, especially as millions more square feet of space are expected to deliver soon, according to a new office market study.

“It’s still a very active market but it’s definitely slowed a bit,” said Eric Feinberg of Savills Studley’s Chicago region, which released the report.

Leasing activity dropped from 3 million square feet in the fourth quarter of 2017 to 2.2 million in the first quarter of this year. Class A gross asking rent rose just 0.4 percent in the first quarter, for an average of $44.72. Overall Downtown asking rent rose by 1.4 percent, from $39.36 to $39.91.

The slowdown comes as a number of large projects are set to deliver, including the 1.3-million-square-foot tower at 110 North Wacker that will be anchored by Bank of America and the 2.8-million-square-foot Old Main Post office, which has been pitched as a possible home to Amazon’s second headquarters.

That doesn’t include ambitious plans along the North and South branches of the Chicago River and the ongoing boom in Fulton Market, Feinberg said.

“Every day there seems like a new one being announced or planned in Fulton Market,” he said.

“Unless Chicago lands Amazon,  it remains to be seen whether current demand is sustainable as more than 7 million square feet delivers downtown in the next three years,” Feinberg said, referring to the e-commerce giant’s second headquarters.

Put that in perspective of rising interest rates and a declining employment outlook and that could mean downward pressure on rents, Feinberg said.

“That’s going to be very good for tenants and not so good for landlords,” he said.

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