That backdrop continues to push landlords with big blocks of space to fill to offer extra free rent and lease term flexibility to entice companies to sign on.
While many companies are still contemplating how they’ll use offices moving forward, “the bold that have come out and taken advantage of the opportunities in the market feel that maybe the worst is behind us, and that’s what you’re seeing in these numbers,” said leasing agent Jon Cordell, an executive vice president at CBRE. “The good news is the uncertainty isn’t as high as it was. There’s more resolve in needing office space.”
Backing up that sentiment is more than 200,000 square feet of positive net absorption during the fourth quarter, a key demand metric which measures the change in the amount of leased and occupied space compared with the prior period. The Fulton Market District—which has won the lion’s share of deals during the pandemic—boosted that absorption figure with CCC Information Services and Kroll (formerly Duff & Phelps) occupying their new offices at 167 N. Green St. Elsewhere downtown, cryptocurrency startup CoinFlip moved into more than 43,000 square feet at the Old Post Office, and online consumer-lending company Affirm occupied a similarly sized footprint at 350 N. Orleans St.
But landlords will need those gains to pick up speed to make up for huge leasing losses over the past two years. Net absorption for all of 2021 fell by 2.1 million square feet—the worst year on record, CBRE data shows. That wiped out almost all of the positive absorption combined from 2020 and 2019, the latter of which was a record high.
Some big new leases gave some landlords reason to feel better during the fourth quarter. Heavy-duty tool maker Milwaukee Tool and farm equipment giant Deere inked deals for their first Chicago offices in October and November, respectively, underscoring the value companies place on planting their flag downtown for access to the city’s deep pool of tech-savvy talent.
Companies are also willing to pay more to upgrade their space, hoping to motivate their employees to work from offices rather than home, Cordell said. That has worked well for the newest and recently renovated buildings: Roughly 75% of the office relocations that have occurred over the past nine months have been to higher-quality buildings, according to CBRE.
Two owners of those top-tier properties struck deals during the fourth quarter to take advantage of their leasing success. The New York developer that turned the Old Post Office into a modern office building that is now 95% leased refinanced the property with an $830 million loan—one of the largest mortgages ever for a Chicago office building. And at the new Bank of America Tower at 110 N. Wacker Drive, which is more than 85% leased, Dallas-based Howard Hughes recently reached an agreement to sell its controlling stake in the property to a New York investment firm. That deal values the skyscraper at around $1 billion.