In 2016, the rental rates for downtown Chicago’s prime office spaces rose exponentially.
In fact, a study by CBRE reported an average rent increase of almost 20 percent, from $32.40 per square foot in 2015 to $38.84 per square foot in 2016. According to the Chicago Business Journal, this is one of the highest increases in commercial office space in the world – second only to Belfast, Northern Ireland, which has been experiencing an extreme shortage of prime office space availability.
Within the U.S., Chicago’s increase was significantly higher than that of Seattle, the city with the second highest average rent increase, which saw an 11.6 percent increase in its suburban areas and an 11.4 percent increase downtown. Despite the large increase, Chicago’s price per square foot for prime commercial space is still considerably less than Manhattan’s yearly average of $144.37 per square foot, which is currently the highest in the U.S.
The spike in prime commercial rental rates follows the completion of construction on a number of new high-end office towers in downtown Chicago, some of the first new buildings in a decade. This has boosted the area’s desirability to potential tenants, including several well-known companies like McDonald’s, Motorola Solutions, and ConAgra, which have relocated to the city from the surrounding suburbs or from other cities entirely. Construction and development costs from these new buildings are a large part of the rising rent, as these costs are passed down to the tenants. However, many of these companies are willing to pay the higher cost because they believe it will increase their ability to recruit top people in their field.