Chicago Office Market Investment Volume Takes a Pause

The Chicago market saw $4.65 billion in investment sales transactions in 2016, with 66 percent of this volume occuring in the CBD versus the suburban market. Investment volume was still strong and healthy when benchmarked in terms of historical perspective, but was dramatically lower than the robust peak volume experienced in 2015 of $8.5 billion. Clear pricing deltas were observed between Class A and Class B product in both the CBD and the suburbs, with the CBD maintaining stronger momentum versus the suburban plateau. Cap rates continued to maintain strength in the market, partly due to the continued low cost of debt capital. Pre-recovery pricing has been reached or surpassed for Class A and Trophy assets. Chicago continues to offer investors a slight yield premium over major national primary markets due to a higher cost of tenant packages experienced in both the CBD and suburban markets. However, that yield premium is coming under pressure as the leasing market slows from its heated level of the past 36 months as investors are more selective and are pricing future risk into their underwriting.

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