It occured to me that despite all my years of blogging, I never say much about Chicago’s real estate market. It’s about time I actually rant about something of which I have knowledge….
The second quarter of Chicago’s downtown office market resumed tightening, posting a 75 basis point (bps) decrease in the second quarter vacancy rate to 12.5 percent. In the past twelve months, the vacancy rate has dropped 200 bps. This trend defies that of the national market which is characterized by continued softening. The decrease in vacancy was attributable to 1.1 MSF of net absorption (increase in tenant demand for space) along with adaptive reuse of obsolete structures such as the low rise of 330 N. Wabash (formerly known as the IBM Building) and the Pittsfield building to hotel and student housing respectively.
That said, landlord’s perceptions about the future have finally started to temper. New deliveries and national economic conditions are hard to ignore. Next year, three new towers will add three percent to supply in 2009. The general business climate has caused some companies to reverse hiring decisions as demonstrated by the 170,000 sq. ft. of quality, long-term sublease availability added this quarter. At 1.2 percent sublease availability is still low by historical standards, however.
In light of the foregoing, we can expect a tenant-favorable market in the near term. Opportunistic tenants will leverage the effects of the new buildings on supply, particularly in the East Loop from which the new buildings’ tenants come.
However, two forces threaten the duration of this environment: skyrocketing construction costs and equally constraining capital markets. Core and shell building construction prices have escalated from $95 per sq. ft. for One North Wacker (2002 delivery) to $135 per sq. ft. for 155 North Wacker (2009) delivery. The same developer is projecting core and shell pricing of $155 – 175 per sq. ft. for a contemplated 2011 delivery. Added to this are preleasing requirements in excess of 60 percent and significantly higher equity requirements in the capital stack. I wouldn’t expect too many additions to the skyline soon. If Chicago is successful at getting the Olympics, it will be very costly to lease or construct office space for the foreseeable future.

McCain, you are an adept politician cut from the George Bush cloth. An excellent manuver to nominate Alaska Gov. Sarah Palin as your VP running mate and attract disaffected Clinton women.
At her Ohio nomination speech this morning, Palin said “I can’t begin this great effort without honoring the achievement of Geraldine Ferraro in 1984 and of course, Hillary Clinton, who showed determination in her presidential campaign,” Palin said. “It was rightly noted in Denver this week that Hillary left 18 million cracks in the highest, hardest glass ceiling in America. But it turns out the women of America aren’t finished yet, and we can shatter that glass ceiling once and for all.”

McCain is expected to announce his VP running mate today. The three oft cited candidates are Mitt Romney, Tim Pawlenty and Joe Lieberman. Lieberman would solidify McCain’s contention that HE is the candidate for change. I wasn’t a fan of Lieberman when he ran as VP on the Dem ticket but his support for the Iraq surge to the dismay of his party-and eventual reason to leave it for independent status-not only proved the correct decision but demonstrated his will to do what’s right but not necessarily politically correct. If you contend you reach across party lines, Senator McCain, now’s your chance to show it. My prediction is that he picks Romney, who probably better serves his political purpose. Two presidential candidates talk of centrist policies but contiue on thier partisan paths.