Chicagoland Office Market, Q3 2026: Transcript
Gordon Lamphere: Here’s a sentence I did not expect to say on this show in 2026: Chicagoland 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 story, this segment is going to make you a little uncomfortable, in the best way.
First, I’m Gordon Lamphere, a broker, advisor, and Vice President at Van Vlissingen and Co. We’re deep into another meaningful transaction volume year across every asset class we’re going to talk about today. And that volume matters, because it means the analysis you’re about to hear isn’t just assembled from press releases. It comes from lease negotiations we’re sitting in, sale processes we’re running, and site searches we’re conducting.
Scarcity Is Forcing New Construction
Last quarter I told you that prime CBD office space was running out. You might have doubted me, but we’re only seeing one delivery in all of 2026 and nothing behind it until 2029. This quarter, the market has responded to that scarcity. Sidley Austin has signed on for more than half of a proposed office tower of almost a million square feet at 725 West Randolph, which would be the CBD’s first ground-up office building in years.
You read that correctly. One of the most sophisticated occupiers in this market just looked at the existing trophy inventory and the entire pipeline and concluded that the only way to get space they actually wanted to be in was to wait until 2029 and build new construction, in the most expensive construction environment Chicago has seen in years. That’s not the behavior you see in a dying market. That’s the behavior you see in a market that’s simply short of the product that matters. And every other large tenant with a late-decade expiration just watched them do it.
The Absorption Data
The absorption data backs it up. CBD direct net absorption came in at a little over half a million square feet in the second quarter, the first positive direct quarter since 2023. Direct vacancy actually fell to roughly 24.4%.
Now, I want to be very careful, because the aggregate numbers still carry real pain. Overall absorption, including subleases, was still modestly negative on some measures, and Class A space is doing all the lifting. Class A posted over 300,000 square feet of positive absorption while commodity product kept bleeding. And part of the vacancy stabilization is subtraction, not necessarily demand. Obsolete buildings keep getting pulled out of the office inventory for residential conversion, which flatters the vacancy numbers while shrinking the denominator. Look, I’d rather you hear that from me than discover it in a footnote. But this bifurcation isn’t softening, it’s accelerating, and the inventory itself is being redefined underneath the statistics.
The 2026 Rollover Wave
Here’s the dynamic I told you to watch for last quarter, and we’re now seeing it play out in real time: the 2026 lease rollover wave. It’s a significant volume of CBD leases that were signed in a completely different market. Different rents, different build-outs, different assumptions about how people work. Those expirations are coming through now, and the tenants behind them are being forced off the fence.
What we’re seeing in our own deal flow is a split into three categories. Roughly a third are renewing, usually on shorter terms, and usually after testing the market and discovering that the move economics don’t pencil once you price in 2026 build-outs. A third are moving, almost always up in quality and down in square footage, paying a higher rate per foot for less total footprint and calling it a win, because for many of them, it is a win. And the final third are still procrastinating. Those are the ones I worry about, because the trophy blocks they’re assuming will be there in 12 months are exactly the space that’s disappearing.
Where the Leverage Is Heading
The concession environment tells you where the leverage is heading. In commodity and Class B product, concessions remain enormous. Free rent is measured in years on long-term deals, with TI packages that would have been unthinkable in 2019, because those landlords are fighting for survival. In genuine trophy product, however, concessions have really curtailed, and on the best floors of the best buildings, they’re quietly shrinking. When the concession curve bends before the rent curve, that’s a sign the repricing at the top is generally over.
One trend that’s jumped out from both our own deal flow and the aggregated data: 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 and the length of a build-out, and with the strain on the trades, they’re paying premiums to skip the whole exercise. This connects directly to the macro picture we’re seeing in the office market and in the broader economy, where the trades are increasingly driving up costs. As a result, more tenants are willing to pay for certainty, not just on pricing, but on timelines.
The AI tenant thread from last quarter also deepened. The requirements we’re seeing from AI and AI-adjacent companies keep pulling in one direction: power density, cooling, and collaborative floor plates. Buildings that have delivered on these, or were renovated within the last decade to accommodate them, are seeing a surge in leasing activity.
The Suburban Story
The suburban story deserves a more generous read than it usually gets. Suburban Chicago just recorded its strongest first half of net absorption since 2018, and vacancy has eased from year-end 2025 levels. That doesn’t mean the pain is over. Market-wide suburban office vacancy still sits around 27%. Still, what we’re starting to see are positive signals and real green shoots.
Much of it is a redevelopment story now, not an office story. But in the corridors with real workforces and real reasons to exist, Lake County, I-88, and the Northwest submarkets, the flight to quality in leasing is producing genuine rent growth, north of 6% year over year. Some measures show the best buildings are outpacing even that, and we’re seeing transactions in those corridors every month.
What we see on the ground matches the data. Companies with strong suburban workforces aren’t debating whether to have offices at all. They’re debating which buildings they want to be in, and they’re paying up for the right ones. If you wrote off suburban office entirely, the data says you wrote it off much too soon.
If your lease expires in the next 18 to 24 months and you want top-tier space, everything I said last quarter is now more true than ever. Start now, not next quarter. And there’s one number from this market that I’m saving for the end, because it reframes what a recovery means.
Van Vlissingen and Co. has been the Midwest’s oldest commercial real estate brokerage, development, and management firm since 1879, and today is independently ranked the #1 commercial real estate agency in Chicagoland, home to the #1 independently ranked agent, Gordon Lamphere, and the region’s #1 ranked commercial property management team. If you own, manage, or invest in energy-adjacent, mixed-use, or transit-oriented property across Lake County, the North Shore, the Northwest and O’Hare corridors, DuPage and the I-88 corridor, Will County, or southern Wisconsin’s Pleasant Prairie, Kenosha, and Racine markets, contact Van Vlissingen and Co. at 📞 847-634-2300 or 🌐 vvco.com. For a market-wide view of where these dynamics sit today, see our State of the Chicagoland Commercial Real Estate Market for Q2 2026.