Originally published on JLL’s Chicago Blog by Marissa Oberlander
Increased tenant activity around the CBD has kicked absorption into high gear. Since the start of 2014, 2.7 million square feet has been absorbed from the market with 775,000 square feet in the second quarter alone. Specific submarkets and product types are having a greater impact on this growth than others.
“Segments of CBD inventory in demand by tech and creative users experienced the greatest share of absorption in the second quarter, including properties in the River North/River West cluster and Fulton Market micromarket,” says JLL Managing Director Pam Stamataky.
Not so surprisingly, this activity exceeded absorption along Wacker Drive and areas of the Loop long prized by traditional occupiers. With 31 percent of second quarter leasing activity in River West and River North, it’s likely these relatively small submarkets will continue to take large shares of absorption in the coming quarters.
Where does Wall Street come in? Look no further than Sterling Bay’s $305 million sale of 111 N. Canal (Gogo, Twitter, Uber and Fieldglass) to J.P. Morgan Asset Management. At $363 per square foot, this was the quarter’s most expensive transaction, even eclipsing Willis Tower, which sold to Blackstone for $344 per square foot.
“This is the first tech-dominant asset in Chicago that has traded as a core product, an indicator that some Wall Street investors are starting to view local tech tenants as viable occupiers for investment properties,” says JLL International Director Bruce Miller, who represented Sterling Bay in the sale along with Senior Vice President Nooshin Felsenthal.
“A tech asset trading at a higher rate that more traditional office property like Willis Tower indicates tech and creative users’ growing position in the Chicago office market,” Nooshin adds.
As a result of these tightening fundamentals, landlord confidence continues to grow city-wide. JLL’s forecast calls for demand to remain strong based on the region’s renewed economic vitality. Expect continued rent growth and the start of measured, increasing construction activity.