State of the Chicago Office Market – 2026 Q3
Here is a sentence I did not expect to write in 2026: Chicago may break ground on a new downtown office tower.
While every headline in America is still running the office apocalypse story, a major law firm just committed to anchor a proposed 45-story building in the West Loop, and downtown Chicago just posted its first quarter of positive direct net absorption since 2023. If you think you know the Chicago office market, this report is going to make you a little uncomfortable, in the best possible way.
Last quarter I told readers that prime CBD office space was running out, and some of you doubted me. The pipeline has not changed: one delivery in all of 2026 and nothing behind it until 2029. What has changed is that the market has started responding to that scarcity in ways that show up in signed leases, not just in broker commentary. Below, we break down where the Chicago office market stands in Q3 2026, drawing not on press releases but on the lease negotiations, sale processes, and site searches Van Vlissingen and Co. is running right now.
Vacancy, Absorption, and Rent Trends
CBD direct net absorption came in a little over half a million square feet in the second quarter, the first positive direct quarter since 2023. Direct vacancy fell to roughly 24.4%. After three years of unbroken negative headlines, that is a real inflection.
I want to be careful here, because the aggregate numbers still carry real pain. Overall absorption including subleases was still modestly negative on some measures. Class A is doing all the lifting, posting more than 300,000 square feet of positive absorption while commodity product kept bleeding. And part of the vacancy stabilization is subtraction, not demand. Obsolete buildings keep getting pulled out of the office inventory for residential conversion, which flatters the vacancy rate while shrinking the denominator. I would rather you hear that from me than discover it in a footnote.
The bifurcation I have been describing for two years is not softening. It is accelerating, and the inventory itself is being redefined underneath the statistics.
725 West Randolph: What Scarcity Looks Like in Practice
Sidley Austin has signed on for more than half of the proposed nearly one million square foot tower at 725 West Randolph, which would be the CBD’s first ground-up office start in years. Read that carefully. One of the most sophisticated occupiers in this market looked at the existing trophy inventory, looked at the pipeline, and concluded that the only way to get space it actually wanted was to wait until 2029 and build new in the most expensive construction environment Chicago has seen in a generation.
That is not behavior you see in a dying market. That is behavior you see in a market that is short of the product that matters. When I first wrote about Sidley’s 725 Randolph move in June, I framed it as a warning shot for commodity buildings. Three months later it also reads as a template. Every other large tenant with a late-decade expiration is watching them do it.
The 2026 Rollover Wave Is Here
Here is the dynamic I told you to watch last quarter, now playing out in real time. A significant volume of CBD leases signed in a completely different market, with different rents, different build-outs, and different assumptions about how people work, is expiring now. The tenants behind them are being forced off the fence.
Our own deal flow has split into three roughly equal categories. About a third are renewing, usually on shorter terms, and usually after testing the market and discovering that the move economics do not pencil once you price in 2026 build-out costs. About a third are moving, almost always up in quality and down in square footage, paying a higher rate per foot for a smaller total footprint and calling it a win. For many of them, it is a win.
The final third are still procrastinating, and those are the tenants I worry about. The trophy blocks they assume will be available in twelve months are exactly the space that is disappearing.
Concessions Tell You Where Leverage Is Heading
The concession environment is the cleanest read on who holds leverage. In commodity and Class B product, concessions remain enormous. Free rent is measured in years on long-term deals, and tenant improvement packages that would have been unthinkable in 2019 are routine, because those landlords are fighting for survival.
In trophy product, concessions have curtailed sharply, and on the best floors of the best buildings they are quietly shrinking. When the concession curve bends before the rent curve, the repricing at the top is generally over. That is where we are.
Move-In-Ready Suites and the AI Tenant
Two trends from our deal flow deserve their own mention. First, move-in-ready suites now account for close to 37% of all CBD leasing activity this year, nearly double their share from 2023. Tenants are looking at construction pricing, looking at the length of a build-out with strained trades, and paying a premium to skip the exercise entirely. They are buying certainty on both cost and timeline.
Second, the AI tenant thread from last quarter has deepened. Requirements from AI and AI-adjacent companies keep pulling in one direction: power density, cooling, and collaborative floor plates. Buildings that delivered or were substantially renovated within the last decade to accommodate those needs are seeing a surge in activity. I covered the site selection side of this in how inference AI is rewriting the CRE playbook, and the office version of the story is now visible in tour activity.
Suburban Office Deserves a More Generous Read
Suburban Chicago just recorded its strongest first half of net absorption since 2018, and vacancy has eased from year-end 2025 levels. That does not mean the pain is over. Market-wide suburban vacancy still sits around 27%, and much of the suburban story remains a redevelopment story rather than an office story.
But in the corridors with real workforces and real reasons to exist, namely Lake County, the I-88 corridor, and the Northwest submarkets, the flight to quality is producing genuine rent growth north of 6% year over year, with the best buildings outpacing even that. We are seeing transactions in those corridors every month, and what we see on the ground matches the data. Companies with strong suburban workforces are not debating whether to have offices. They are debating which building to be in, and they are paying up for the right one. The experiential office thesis I laid out last month is exactly what those tenants are buying. If you wrote off suburban office entirely, the data says you wrote it off much too soon.
Outlook: Scarce at the Top, Shrinking at the Bottom
The Chicago office market in Q3 2026 is a market of two directions moving at once. At the top, trophy space is scarce enough that the most sophisticated occupier in the city is building new, concessions are shrinking, and the 2029 pipeline is already being spoken for. At the bottom, commodity and Class B product is still bleeding, concessions are measured in years, and the exit for many buildings is conversion or demolition rather than a lease.
For investors, the plays are trophy and renovated Class A product with the power and cooling to serve modern tenants, well-located move-in-ready suites that capture the certainty premium, and the suburban corridors where rent growth has already returned. For occupiers, the message from last quarter is now more urgent: if your lease expires in the next 18 to 24 months and you want top-tier space, start now, not next quarter. The blocks you are counting on are the ones disappearing.
Final Thoughts
The office apocalypse narrative was never wrong about commodity buildings, and it still is not. What it missed is that a shrinking, bifurcating market can produce genuine scarcity at the top even while the aggregate vacancy rate stays painful. A law firm committing to a 2029 tower is the clearest possible signal that the repricing of the best product is over and the repricing of everything else is still underway.
As a commercial real estate agent active across Northern Illinois and southern Wisconsin, my takeaway is simple: stop reading the headline vacancy number and start reading the concession curve. Those who understand which buildings are becoming scarce, and which are becoming apartments, will be the ones who capture value in Chicago’s office market through the end of the decade.
If you own, occupy, or invest in Chicagoland office space and want to understand where your building or your requirement sits in a bifurcating market, contact Van Vlissingen and Co. at 📞 847-634-2300 or visit 🌐 vvco.com to speak with our office sales and leasing team.