Demand for Chicago office space kept falling in 2023, a sign that a true recovery for downtown could be years away.
The drop-off comes even as some high-flying cities like New York City saw demand nearly return to 2019 levels, while tech-heavy markets on the West Coast remain stuck in the doldrums far behind Chicago, according to a new study by VTS, a New York-based software firm that tracks the number of companies checking out potential new office space.
“Being in the middle of the pack is what we expected from Chicago,” said Max Saia, vice president of investor research for VTS.
New York buildings are packed with finance, banking, private equity and other investment firms, and these industries have returned to the office at a high rate, Saia said, while work-from-home strategies are still popular with the many high-tech companies headquartered in San Francisco and Seattle. Chicago’s economy isn’t dominated by any of these businesses, so its record is mixed.
As of December, demand in Chicago stood at 45% of the pre-pandemic norm, a 10% decline from the previous year, VTS found. Demand for New York office space was 75% of its pre-pandemic level, followed by Los Angeles at 69%, with San Francisco and Seattle at the bottom with 34%.
With so many workers still attached to their home offices, especially on Mondays and Fridays, few companies in downtown Chicago feel the need to sign big new leases and fill the market’s many vacancies. If Chicago offices stay empty for years, it could make it difficult for many owners to continue making mortgage payments, and the restaurants and stores that depend on office workers may not survive.
At the end of 2023, downtown’s vacancy rate was steady at just over 22%, a near-historic high, according to Colliers, a real estate firm.
VTS did detect some signs of life in the office market, Saia said. Nationwide, largely driven by the gathering strength of New York City and Los Angeles, overall demand for office space in 2023 hit 55% of its pre-pandemic level, a nearly 20% year-over-year increase.
And even though VTS doesn’t expect any sudden shifts away from work-from-home in other cities, including Chicago, companies will in 2024 continue trying to pull workers back to the office.
“It’s going to be very slow and measured,” Saia said. “But we feel that at some point it will carry the day.”