Suburban Office Vacancies Hit Record High In First Quarter Of 2024

EVANSTON, IL — Occupancy rates at suburban office buildings hit a record low in the first quarter of the year, with tenants in the northern suburbs vacating space at a faster rate than any other region.

According to a new report from commercial real estate company Transwestern, the overall vacancy rate in the north suburbs rose to 21.4 percent in the first three months of 2024.

Nonetheless, rents rose by 1.7 percent compared to a year higher, a full percentage point more than any other region.

North suburban office buildings continue to command the second highest rents in the Chicago area. With an average of $27.83 per square foot, they trailed only O'Hare's rate of $29.13 per square foot.

Despite a reduction of more than 321,000 square feet of leased space, the vacancy rate in the north suburban region remained below that of the region northwest of O'Hare — though the northwest suburbs were ones where the report found a reduction in the amount of vacant space.

The largest suburban sale of the year so far was the $74 million purchase of 1400 and 1450 American Lane in Schaumburg, which had been in foreclosure. It marked a 14 percent decline from the complex's 2018 sale price, the report found.

In the north suburbs, the biggest sale was the $29.5 million purchase of 100 and 210 S. Milwaukee Ave. in Vernon Hills, where an office building is set to be demolished to convert the 70-acre site to fully industrial.

In Skokie, the sale of the seven-story Old Orchard Towers complex was also among the quarter's most notable transactions.

DIR Development paid just $7.85 million for the buildings at 5202 and 5250 Old Orchard Road — properties that were purchased by Zeller for $63.5 million in 2007, according to the Transwestern report.

GW Properties and the Drake Group plan to convert the 43-year-old office complex into apartment buildings containing 245 units.

And in Evanston, the city's lease of more than 51,500 square feet of space at 909 Davis St. was the quarter's largest outside of the west suburbs.

Across all suburbs, the vacancy rate of 23.4 percent is expected to remain high. But projects to convert office buildings to other uses could eventually lead to a reduction.

According to Transwestern, the total amount of suburban office space has declined by about 2 million square feet over the past two years.

"This trend is sure to continue, as most recent suburban office purchases have been made with redevelopment intentions," according to the report. "In order for Chicago’s suburban office market to improve, even more outdated inventory will need to be taken out of circulation and the remaining office property owners will need to invest in property improvements, spec suite build outs, and tenant improvement allowances for new leases."