Chicago's Commercial Real Estate Market: News and Trends

The Chicago commercial real estate market is among the top commercial real estate markets in the country. It competes with cities such as Los Angeles, New York City, and San Francisco for the "best CRE markets". Despite the pandemic and the ebbs and flows of real estate in the past few years, markets such as downtown Chicago, Fulton Market, and near the United Center; and more continue to grow, particularly in the commercial space.

If you're looking to make a sound real estate investment, Chicago is an incredible city to do so. This is also an excellent opportunity for those looking to diversify and expand their investment portfolios with buildings in demand across the city.

At 33 Real Estate, our commercial property management and brokerage company in Chicago has deep expertise in everything from retail to office to business properties. Get in touch to see how our team can help you navigate the Chicago market.

Current State of Chicago Commercial Real Estate Market

Chicago, Il is located along the stunning shores of Lake Michigan and it is a city that both businesses and people like to call home. It is home to the second-largest central business district in the country and has built a reputation of being a vibrant city with a bustling economy. You won't find a better city in the Midwest!

The city has a diverse portfolio of economic sectors including healthcare, education, hotels and tourism, manufacturing, education, and more. Many Fortune 500 companies are located here and tourists from around the globe seek it out for its incredible culture and food scene.

1) Chicago Cap Rates

The cap rates of the Chicago commercial real estate sectors are all positive and hover around 7 percent:

• Office: 7.5%
• Multifamily: 6.1%
• Industrial: 7.0%
• Retail: 7.5%

2) Chicago Commercial Real Estate Vacancy Rates

The vacancy rates across sectors are similar this year, ranging from 6-8 percent. The office market in particular has taken a hit this year with the vacancy rate hitting 14 percent; as labor markets have shifted in the wake of the pandemic, many businesses have allowed employees to work from home, allowing them to cut back on rent.

• Office: 14%
• Industrial: 6.1%
• Multifamily: 8.2%
• Retail: 6.2%

3) Chicago Asking Rates

Here are the current Chicago asking rates:

• Office: $29.16/square foot
• Industrial: $7.57/square foot
• Retail: $18.85/square foot
• Multifamily: $1,423/unit

4) Chicago Absorption Rates (12-Month Net)

Here are the current absorption rates:

• Office: 5,400,000 SF
• Industrial: 18,600,000 SF
• Multifamily: 196 units
• Retail: 823,000 SF

5) Chicago Commercial Real Estate Sales (Past 12 Months)

Here are the sales statistics across the four primary sectors over the past year.

• Office: $109.3B
• Industrial: $102.4B
• Multifamily: $100.6B
• Retail: $102.7B

Chicago Multifamily Market Overview

Year after year, multifamily rent growth in Chicago has increased by approximately 16 percent which is roughly four times the historical average. According to Matthews Real Estate Investment Services, 41 of Chicago's 43 submarkets had rent gains, the majority of them over 10%. Downtown Chicago such as Randolph St has seen some of the most noteworthy increases, and downtown is where there is the highest gross volume of sales in the past year.

Chicago Multifamily Market Highlights

The third quarter of last year showcases the Chicago multifamily economy continuing to grow. This is likely due to the healthy local economy that is always adding jobs at a fast pace. As rental prices continued to increase, vacancy rates continued to decrease. In fact, local vacancy reached its lowest results in 5 years. The year-over-year change is up 9.8 percent and the vacancy rate was 4.7 percent.

Multifamily Rents

The operating conditions in the Chicago multifamily market saw a significant improvement while apartment developers are starting to bring their projects online. The average asking rent price for multifamily is $1,791 and there are approximately 4,000 units that will be completed this year.

Multifamily Sales

The overall sales prices have continued to increase and investment interest has done the same compared with last year's numbers. For example, the median sales price is $145,700 per unit, a number that's up almost 5 percent compared to this time last year.

Future Considerations

The vacancy rate is expected to slightly improve in the fourth quarter and reach its lowest year-end figure since 2016. This means that things are only looking up for multifamily operators who continue to have the ability to raise rent. Stability is only expected to increase and continue in the future.

If you're interested in multifamily property management in Chicago, our team at 33 Realty is here to help you navigate the surplus of information!

Chicago Industrial Market

The industrial leasing market in Chicago reached almost 34 million square feet through Q3 of 2022. Companies such as Uline and Home Depot each signed leases for 1 million square feet. Industrial rental prices are on the rise while vacancy levels continue to decline. Here are some statistics taken from the Cushman & Wakefield Q3 2022 Chicago Industrial Report:

• Total industrial inventory: 1,210,372,679 SF
• Vacancy rate: 3.9%
• Average asking rent: $6.34/SF per year, NNN
• Absorption: 21,895,899 SF through Q3 2022
• Leasing activity: 33,905,091 SF year to date
• Some key lease transactions by tenant include: Uline 1,048,961 square feet, Georgia Pacific 1,000,560 square feet, Home Depot 1M square feet, RJW Logistics 814,848 square feet
• Some of the largest industrial submarkets include: Western Cook County, Interstate 55 Corridor, O'Hare, Chicago South, Interstate 80 Corridor
• Investment sales trends: $1,399,000 total investment acquisitions and an average sales price of $85/square foot with a market cap rate of 6.8%

Chicago Office Market

The office market in Chicago isn't as prominent when compared with other gateway markets, but there are still many deals that are crossing the finish line. For example, the NAR reports that over $1.5 billion worth of office buildings changed hands in the first quarter of 2022 and transaction sales prices reached $208 per square foot. The market cap was 7.5%.

The Central Business District (CBD) continued to absorb properties with 294,348 square feet of positive net absorption in Q4. It had an annual absorption of 1,454,006 SF, which was the highest total since 2019.

The total CBD leasing volume in Q4 for deals above 10,000 square feet was 995,688 square feet with nearly 2/3 of Q3's total of 1,578,126 square feet. Some major deals closed including Burns & McDonnell extending its lease for 74,000 square feet in the West Loop and CTC Trading locking in a 46,000 square foot expansion in the Central Loop.

There were some noteworthy moves that included Blue Cross Blue Shield downsizing by 42,000 square feet in the E/W Tollway and BDO got rid of 10,500 square feet of space. In Q4 of 2022, there were no new buildings that were delivered in the city of Chicago.

Chicago Retail Market

Investors will see that the average rental rates for retail space in Chicago continue to slowly increase. Foot traffic continues to increase in both suburban and urban centers. According to Lee & Associates, vacancy in Chicago's retail market dropped to 5.8 percent and there was over 3.3 million square feet of absorption over the past year.

Here are some other noteworthy statistics:

• Average asking rent: $17,74 per SF per year, NNN
• Total retail inventory: 583,661,167 SF
• 12-month net absorption: 3,341,684
• New construction: 1,313,067 SF under construction
• Key leases by tenant: Wayfair 152,000 SF, Pete's Market 87,445 SF, Macy's 120,000 SF
• Investment sales trends: $925 million in acquisitions in Q1 of 2022 with an average sales price of $167 per SF. Cap rates were 7.3% according to NAR Commercial Metro Market Reports Q1 2022)
• Median household income: $78,166 with 67% of HH earning a minimum of $50K per year

33 realty - Your Trusted Partner in the Chicago Commercial Market

As you can see from the above statistics and information, Chicago commercial real estate continues to be a sound investment opportunity for those who are looking. The city has a ton to offer and there are many benefits that you can consider in both the short and long term. Home to nearly three million people and growing fast, Chicago has so much to offer young professionals and their families. At 33 Realty, we understand that and we’re proud of the city we call home. 33 Realty is one of Chicago’s leading commercial real estate investment and management companies, and we’re proud of that, too. Space in Chicago has never been so cool. Let us help you find yours!

If you're in need of property management services and hands-on guidance from an experienced team, our team at 33 Realty is here for you. We are one of the top firms in the city and our brokers can serve your every need.