Chicago’s suburban investment-grade office market is recording lower direct, sublet and total availability rates than its downtown peers — a first since downtown's direct availability rate began its serious ascent in 2023 while its suburban counterpoint remained relatively flat.

It’s not that demand is more robust or even more consistent in the suburbs than in downtown. Four years ago, the suburban office market started from a position of weakness and not much has changed. In 2019, Chicago’s downtown was riding high with demand and corresponding development. Now, it looks like downtown’s office market is in a free fall.

Since 2020’s first quarter, Chicago’s suburban investment-grade office market’s direct availability rate climbed 220 basis points from 18.1% to 2024’s first quarter’s 20.4%, while downtown’s direct availability rate skyrocketed almost 1,100 basis points from 13.5% to 24.3% during this period.

Suburban property owners are more likely to lower their asking rents than invest gobs of capital to attract modern tenants to their spaces. This strategy creates a mixed bag of results for these owners. It works in some office enclaves, such as a suburban downtown location, where the supply is relatively tight with little to no space competition. In other parts of the market, however, these properties sit virtually empty and, frankly, ripe for redevelopment. It’s why the overall investment-grade office supply has languished for years here.

But the suburban office market instigated at least one crucial change during the past few years. Since 2019, the market has demolished or repurposed over 2.2 million square feet of its existing inventory. This trend should continue as vacant office buildings and bucolic campuses are repurposed for uses such as distribution or data centers.

Meanwhile, Chicago’s downtown office market has expanded its supply by 7.5 million square feet since then. Unlike its suburban peers, much of its obsolete office supply is considered a national treasure, built by First Chicago School architects during the late 19th and early 20th century and Second Chicago School architects from the 1940s through the 1970s.

Help may be on the way for Chicago’s downtown. On April 3, Mayor Brandon Johnson announced a $151.2 million allocation to support four redevelopers’ plans to convert 1.3 million square feet of languishing office space into 1,000 apartments, including 319 affordable units. Although a step in the right direction, more than 25 million square feet of office space is currently vacant within the traditional confines of the Loop south and east of the Chicago River.

The real elephant in the room is that suburban tenants don’t move much and put up their current lease obligations on the secondary market as downtown office tenants do. Suburban sublessors only increased their collective market share by 50 basis points, or 1 million square feet, from 2020’s first quarter to the end of 2024’s first quarter. Downtown Chicago’s sublessors, on the other hand, doubled their sublet availability rate from 2% to more than 4%, or 7.5 million square feet, during this time.

Across the nation, suburban office markets’ outward demand metrics outperform their downtown peers, and Chicago’s is no exception, with or without owner-occupied assets included. The more pertinent question, however, is whether these markets started from positions of weakness or relative power.

In Chicago's case, the greater the market’s strength, the farther it had to fall.