CHICAGO — The pandemic has taken the world on quite a ride that hasn’t come to an end quite yet.
Suffering its fourth consecutive quarter where vacancies have hit a record high, brokers for downtown office space shared the recent pain and optimism harnessed in what has been another difficult year.
If commercial office space is your business in Chicago, you are likely still recovering from the whiplash endured in 2020.
Market watchers have said the state of downtown office space is still on life support as of the third quarter of 2021. As many workers remain at home, buildings have remained cold during the COVID-19 pandemic.
The iconic skyline that defines the city by the lake, with its big steel shoulders creating the peaks and valleys of Chicago’s streets and alleys. They mirror the tone of a town living with peaks and valleys everyday, with politics, crime, snowstorms and markets painting the picture.
The economic hurdle testing Chicago’s commercial real estate during the pandemic has left the industry struggling greatly, similar to many others.
“The first quarter of 2020, we broke a record for the most leasing volume that we’ve ever had in the history of Chicago. In the third quarter, we broke a record for the least amount of leasing volume,” Matt Carolan of JLL, a global real estate company said.
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Carolan said the future of Chicago’s beautiful office buildings, occupying over 150 million square feet just in downtown continues to depend on when city employees get back to work.
“You start to have conversations with people and wonder, are people ever going back to the office,” Carolan said.
This summer, things were looking up until the Delta variant surfaced and old mask mandates were re-introduced.
For the third quarter this year (July to September 2021), the total vacancy rate in the central business district is 20 percent, according to CBRE.
The real estate services and investment firm shows that number is up from 19.4 percent earlier this summer from April to June 2021.
Back in March, the Chicago Tribune noted 21.4 million square feet of vacant office space existed in Chicago, coming to 18.6% or the equivalent of five empty Willis Towers.
“Companies put off their work plans and many people continued to work from home,” Alby Gallun of Crain’s Chicago Business said.
Gallun writes about commercial real estate for Crain’s and has noted the inconsistencies over the past 20 years.
He described the state of the industry in March of 2020, when the world was sent home to protect against the invisible virus sweeping the globe.
“I think there was a lot of fear in the market. It felt like the market was just going off a cliff and no one really knew how far it was going to fall,” Gallun said.
Back then, there was 19.3 million square feet of vacant space. Today, there is 25.2 million square feet of vacant space.
“The big wild card is this work from home question and this hybrid work question. Even if the economy recovers completely, this pandemic may have changed the way people work permanently,” Gallun said.
Just last month, Google took a chance in New York City, announcing a $2.1 billion deal to buy office space for its employees.
In Chicago, PR giant Edelman is putting the finishing touches on a deal that takes the firm out of the Aon building and into the West Loop. Recently, 81 percent of Edelman employees said they don’t want to come into the office five days a week anymore.
In response, Edelman is going from 170,000 square feet to 92,000 square feet of office space.
“I do believe you will see less of the five-day-a-week employee coming into the office. I think you’ll see people coming in three days a week,” Carolan said.
More amenities to attract and keep young talent are the new focus, with coffee shops, health clubs and access to good restaurants.
That was indeed the plan all along until the Delta variant flexed its muscle. So many companies were hoping to get workers back in the office after Labor Day.
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It didn’t happen.
Both men agree that there is hope for more return in early 2022, with vaccines and more hiring sparking optimism.
Still, Kastle Systems, the company operating those security key cards and fobs commonly used in big buildings reported that just 31.4 percent of its buildings were occupied in the last week of September.
That is dwarfed by the 99.6 percent usage rate on March 4, 2020.
“It’s unusual because the future is so uncertain. In some ways, the world has changed forever and we just don’t know how,” Gallun said.
For Carolan, he believes Chicago will “really take off” in the first and second quarter of 2022. He added that the Fulton Market District has seen significant growth lately, with increases in apartment rentals and warehouse leases.