Chicago Office Market Down, Not Out Amid COVID. Here’s Why.


Chicago has several factors that help guard it against an absolute commercial real estate freefall, including a wider expanse of space for new construction, and a mix of industries that prevents a downturn within any one of them from taking down the local economy en masse. 

But the city is still a city, and its office market has felt the effects of this pandemic deeply, if not as horribly as some other sizable markets.

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“We’ve seen pretty heavy deceleration in leasing both in our downtown market and our suburban market, which we look at separately,” said Linsey Smith, director of Chicago research for Cushman & Wakefield. “We saw record leasing in our downtown market last year, and the first quarter was really consistent with that demand. The second quarter was when things started to slow down, but deals that were close to the finish line at the beginning of the quarter still got done. Leasing wasn’t as healthy as it had been, but it definitely didn’t decelerate to the degree that we’ve seen in the third quarter. We’ve seen rapid deceleration.”

Smith notes that while downtown has long outperformed the suburban market, COVID-19 has served as a great equalizer.

“In the first quarter of this year, office leasing downtown was about twice the volume of what it was in the suburbs,” Smith said. “We’ve started to see that gap close. By the third quarter, we saw lower office leasing overall, and we saw it about evenly split between our downtown and our suburban markets. So that means we’ve seen a larger deceleration downtown than we have in the suburbs.”

COVID has also assured that the rest of 2020 is basically a wash in the Windy City.

“In the early days of COVID, some transactions got completed,” said Paul Reaumond, a vice chairman at CBRE. “Some renewals, expansions, new transactions, deals where the train had left the station—most of those folks went ahead and finalized the transactions. 

“Since that time, the market has basically become frozen,” he added. “There are some renewals being done on shorter-term leases, so that you can kick the can down the road and figure out where things are going to be, starting in 2021. But, effectively, toward the back half of Q2 and Q3, there has been very little leasing activity.”

Experts on the Chicago-area office market expect the region’s leasing slowdown to continue for the foreseeable future, at least until a COVID vaccine becomes widely available. Until then, office tenants will be in the driver’s seat.  

“Twenty twenty-one is going to be a tenant’s market,” Reaumond said. “Landlords are going to have to compete on pricing flexibility and other things on the margins to attract tenants. Whether that includes rideshare discounts, rethinking amenities—these will be the realities of a post-COVID world.”