Welcome to the topic “Opportunities for Chicago Business Owners in 2025“
The downtown office market in Chicago is now facing a shift. In the second half of 2024 the office vacancies reached 26.3% – which settled a new record high and marked the 10th consecutive quarter of rising vacancy rates.
This new vacancy rate is a significant growth from 23.8% at the end of 2023 and more than double the 13.8% vacancy rate of 2020.
Even though vacancy rates are on the rise, these numbers actually signal a potential window of opportunity for businesses seeking CRE office space – especially in downtown Chicago.
In markets where demand for office space has dipped, business owners can capitalize on the shift. Now that there’s so much space available and landlords are eager to lease, there’s more negotiating power than there was ever before.
But it’s not just about finding space—it’s about finding the right space that suits your company’s evolving needs. Take a look at how this unique moment in the office market can help your business succeed.
2024 in Review: A Year of Shifting Demand
The downtown office market just wrapped up its second-worst year in terms of office space demand on record. The market observed a high increase in vacancy rates driven by the ongoing trend of remote and hybrid work, and the changing workspace needs as businesses reassess their office requirements.
In fact, businesses collectively vacated 1.6 million square feet more space than they occupied in 2024. It is quite a significant shift that only follows the 2.2 million square feet drop-off experienced in 2020, which was the peak of the pandemic.
But what does all of this mean for business owners?
Opportunities in Record High Vacancies
Landlord Incentives Are at an All-Time High
If you’re considering leasing office space in downtown Chicago, now is a prime time to negotiate. There is so much vacant space available that landlords are offering attractive concessions, including months of free rent and more in tenant improvement allowances.
With vacancy rates reaching record highs, landlords are more motivated than ever to fill available space, which gives businesses more leverage in negotiations.
However, while the rent price is important, business owners must also consider the full financial picture. One must also consider other costs such as maintenance, utilities and any increases in property taxes.
The Flight to Quality
Class A buildings ended 2024 with quite a low vacancy rate of 20.06% due to their modern amenities and prime location. On the flip side, the Class B buildings observe a much higher vacancy rate of up to 31.8% . This shaft, which is often referred as the “flight to quality,” suggests that businesses who are looking to increase in-office attendance may want to focus on premium spaces. These spaces are also becoming available at discounted prices, allowing businesses to find the right balance between the space benefits and their budgets.
Business owners looking specifically at properties that offer upgraded amenities like fitness centres or collaborative workspaces are in a great position to secure top CRE office space in the city.
Take the example of engineering firm Sargent & Lundy’s recent move to 77 W. Wacker Drive, where they expanded to 380,000 square feet. This move shows the increasing appeal of high-quality buildings that support business needs as well as supporting employee satisfaction.
Sublease Market Offers Affordable Alternatives
Chicago’s sublease market presents appealing opportunities as well, with 6.4 million square feet of space available. Subleasing can be an attractive option to access prime locations at a more affordable price for smaller businesses or startups. These agreements often come with shorter lease terms and offer the kind of flexibility that businesses need in today’s market.
Attracting and Retaining Talent
In today’s market, office space is a reflection of your brand and your workplace culture. Employees are drawn to spaces that encourage collaboration and fuel creativity. Take, for instance, PricewaterhouseCoopers’ (PwC) decision to renew its 282,577-square-foot lease at 1 N. Wacker Drive.
This prime location serves as a clear example of how quality office spaces can not only attract top talent but also foster a work environment that keeps them engaged and committed.
Specific Considerations
As you consider your options, there are a few local trends worth keeping in mind. Firstly, Chicago is committing nearly $250 million to tax-increment financing aimed at converting vacant office buildings in the Loop into apartments. This investment could breathe new life into parts of downtown and potentially will improve the area’s appeal for businesses in the near future.
Secondly, Chicago’s labor market remains a major strength of the city’s economy. The city itself offers a bigger and more diverse talent pool that spans industries. The expansion of companies like Sargent & Lundy and PwC only reinforces the city’s ongoing attractiveness as a business hub.
Lastly, while downtown Chicago’s office market is going through its own challenges, leasing costs remain notably more competitive compared to cities like New York or San Francisco. This makes Chicago an appealing option for businesses looking to grow.
Final Thoughts
While Chicago’s commercial real estate market is shifting with high vacancy rates and shifting tenant preferences, business owners are still able to remain flexible by adapting their CRE office space strategies and needs.
As a commercial real estate brokerage firm, Tenant Advisory Group is in a unique position to help our clients through these changes. It is important to offer insight and guidance while explaining the complexities of the market. By doing so, our clients are able to be part of the larger effort to breathe new life into downtown Chicago and help it thrive again.
Also read: The Power of Connection: Building Partnerships Beyond Transactions
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