Chicago real estate’s biggest stories of 2021
(Zillow, iStock, Sterling Bay)
The winners and losers in the Chicago real estate market for 2021 were clear.
Landlords in downtown Chicago, home of the country’s second-largest central business district, have been hardest hit by the pandemic, as the office vacancy rate rose to over 20 percent in 2021. While rental activity picked up later in the year as businesses prepared to bring employees back, recovery to pre-pandemic levels is still a long way off.
Developers in Fulton Market, a hip business and entertainment district, were among the winners, with companies signing leases for new Class A buildings with world-class amenities. Real estate agents had a busy year selling more homes than last year, buoyed by a combination of low interest rates, stock market gains and people looking for larger homes as remote working became the norm. Landlords and developers of big-box warehouses had their best year, with both rents and projects in the pipeline rising to record highs.
Here are some of the top real estate stories The Real Deal has covered in 2021.
Slow burn for downtown office buildings
The largest downtown office outage came from the 915,000-square-foot Civic Opera House at 20 North Wacker Drive. After failing to make monthly loan payments since May, New York investment firm 601W was hit with a $195 million foreclosure in October.
For some investors, the answer was to sell or sell their buildings. The 28-story building owned by local investment firm Kinship Capital at 225 West Washington went on the market in October with no asking price. Kinship listed the property for about $120 million three years ago, but bids of $95 million were expected, reflecting the pandemic-stricken downtown office market.
“The office market is slow to develop,” Laura Dietzel, senior real estate analyst at RSM, said of the trend in a real deal feature published in December.
About 10 percent of commercial real estate mortgage-backed securities are past due or in special maintenance, a step taken to settle a debt, often through sale. This makes Chicago the city with the sixth most dilapidated office buildings, behind St. Louis, Hartford, Cleveland, Houston and Orlando.
Hotels were hardest hit in the city center as business travel remains at a fraction of pre-pandemic levels. The Kimpton Hotel Monaco sold for just $36 million, down 35 percent from its last sale in 2013.
Chicago was also ranked sixth on the national list of distressed hotels that are at least 30 days past due or under special maintenance.
Chicago’s most promising neighborhood: Fulton Market
The most expensive office deal was in Fulton Market, with the sale of Google’s Midwest headquarters in June for $355 million, 20 percent above what ARA Sterling Bay paid for the 10-story building in 2016.
Demand in the Fulton Market remained strong, although vacancy rates remained relatively high due to new construction there. Germany’s Deka Immobilien bought a fully-leased, 206,000-square-foot Google Cloud building at 210 North Carpenter in September for $169 million, marking the second-most expensive office sale last year.
Developers and tenants in Fulton Market began thinking small as businesses increasingly opted for wide, open floor plans.
Sterling Bay, for example, revised plans for its Fulton Market office building at 360 North Green Street in October to make it narrower but nine stories taller.
With the active office development came residential projects from well-known developers. LG Development proposed a 665-unit apartment building in two towers at 1143 and 1150 West Lake streets. Sterling Bay submitted plans for its first 282-unit residential development at 160 North Morgan.
Story of Two Cities
According to the Illinois Association of Realtors, the number of real estate agents sold last year rose 16 percent year over year to 127,317 from January through November. High demand sparked bidding wars and helped push the median price to $300,000 last year, a 12 percent increase from 2020.
It was also a record year for luxury real estate. About 100 homes sold for $4 million or more in 2021 are double the average of 51.5 over the past six years.
While 2021 has been a good year for real estate agents and the super-rich, it hasn’t been so good for low- and middle-income first-time homebuyers. Chicago’s cheapest suburbs — Chicago Heights, Park Forest, and Hazel Crest — saw the biggest price gains in 2021. Bidding wars have priced out first-time buyers and left them in the rental market.
industrial market
It was an excellent year for Chicago’s already strong industrial market. Increased demand for last-mile warehouses and distribution centers pushed asking rents to an all-time high of $5.90 per square foot in the fourth quarter of 2021. Active leasing pushed vacancy rates down to 8 percent during this period, below the pre-pandemic level of 8.6 percent.
The biggest deal came from Wayfair, which signed a 1.2 million square foot lease in Romeoville, and Amazon’s 1.16 million square foot lease in Huntley.
Other notable deals included electric bus company Lion Electric’s commitment to over 900,000 square feet in Joliet and Tesla’s smaller lease of 309,000 square feet in Lockport, a signal that electric vehicle manufacturers are securing locations in the Chicago area.
In addition to the millions of square feet of space rented last year, build-to-suit developments were popular as competition for large warehouses increased. Amazon, which has more than doubled its industrial space in the country during the pandemic, opened two five-story fulfillment centers in the suburbs of Markham and Matteson, each with 3.6 million square feet, ranking among the top two shipments for 2021. To meet growing demand satisfying, about 28.5 million square feet were in the pipelines, the most in 25 years.
Contact Connie Kim