Sidley Austin’s 725 Randolph Move Is a Warning Shot for Chicago’s Office Market

When the city’s most storied law firm walks away from a half-million square feet of perfectly functional downtown space to chase a tower that will not open until 2030, the rest of the market should pay attention. Sidley Austin has signed on as the anchor tenant for Related Midwest’s planned 45-story trophy office building at 725 W. Randolph St. in Fulton Market, taking more than half of the one million square foot high-rise. On its face this is a celebration, the first major new office tower Chicago has launched in years and the clearest signal yet that downtown leasing has clawed back from its post-pandemic lows. Look closer, though, and the deal reveals something more unsettling about where this market is actually heading.

The Flight to Quality Is No Longer a Trend, It Is the Whole Market

Sidley has occupied 554,000 square feet at 1 S. Dearborn St. since 2005, a lease that runs out in 2030. Rather than renew in a building that has served the firm for two decades, Sidley chose to seed an entirely new tower designed by Kohn Pedersen Fox in the city’s hottest submarket. That choice is the story. It tells you that for a tenant of Sidley’s caliber, an existing Class A building in the central business district was no longer good enough to retain them, and that the only way to keep a marquee anchor in Chicago was to build something that does not yet exist.

This is what functional obsolescence looks like in real time. The phrase usually conjures images of crumbling Class B towers with dim lobbies and tired floor plates, but the Sidley decision pushes the definition higher up the quality ladder. When a well-located, well-maintained downtown building cannot hold its anchor tenant against the gravitational pull of a brand-new development, the bar for what counts as competitive space has moved, and a large share of the inventory that owners still consider viable has quietly fallen below it.

A Tale of Two Markets in One City

The macro numbers make the divide impossible to ignore. Downtown Chicago office vacancy hit an all-time high of 28.6% in the first quarter of 2026, up from 28.2% at the end of 2025, marking the fifteenth consecutive quarter of record highs. Almost half of the roughly 40 million square feet of vacant downtown space has been sitting empty for at least three years. By any conventional reading, that is a market in deep distress.

Yet the top of the market tells the opposite story. Some data shows vacancy rates in Chicago’s 20 newest office buildings at around 8%, and trophy office peak day occupancy reached 93.7% on March 3 according to Kastle data. Two markets now live inside one downtown: a small band of premier buildings running close to full, and a vast remainder of inventory that tenants are increasingly treating as undesirable at almost any price. The Sidley deal does not bridge that gap, it widens it, because the firm is vacating 554,000 square feet of Class A space that now has to find a tenant in a market where demand is concentrated in a handful of addresses.

Why the Top Spaces Are Coming to Dominate

Several forces are pushing demand into an ever-narrower slice of the market, and each one compounds the others.

• Hybrid work has made the office a recruiting and retention tool rather than a default, so employers will only pay for space that employees actively want to come to.
• Tenant utilization data now favors trophy buildings so strongly that occupiers can justify premium rents on a cost-per-occupied-seat basis, even as headline rents look high.
• Lenders and investors have grown wary of anything but the best, which starves mid-tier buildings of the capital they would need to renovate their way back to relevance.
• A development pipeline that ran completely dry, with no downtown trophy building breaking ground since Salesforce Tower in April 2020, has created genuine scarcity at the very top, allowing new product to command anchor commitments years before delivery.

The result is a market where the best 20 buildings increasingly set the terms for everyone, and where a tenant’s willingness to wait until 2030 for the right space speaks louder than any vacancy statistic.

What This Means for Owners of Everything Else

For the owners of Chicago’s Class A and Class B office inventory that does not sit in the top tier, the Sidley move is a clarifying and uncomfortable signal. The 554,000 square feet Sidley leaves behind at 1 S. Dearborn enters a downtown that already has 40 million square feet of vacancy and limited appetite for anything but the newest product. The risk is not simply higher vacancy, it is repricing, as buildings that cannot compete for top tenants get re-rated toward conversion value or land value rather than office value. Class B owners are already watching space trade at a fraction of its former worth, and the Sidley deal accelerates the timeline for everyone caught in the middle to decide whether they reposition, recapitalize, or repurpose.

What Comes Next

The 725 Randolph project still needs city council approval and a financing close that Related expects to complete next year, so the tower is not yet a certainty. What is certain is the direction of travel. Chicago’s office market is no longer a single market that rises and falls together; it is a barbell, and the heavier end keeps getting heavier. Owners who assume their building will recover simply because the headlines say leasing has rebounded are misreading what the Sidley deal is telling them, because that rebound is flowing almost entirely to a small set of premier addresses while the rest of the stock drifts toward obsolescence. The owners who navigate this best will be the ones who assess honestly where their asset sits on that spectrum, invest decisively in the improvements that keep a building competitive and insurable, and make hard repositioning decisions before the market makes those decisions for them. To talk through where your property stands and what it will take to keep it relevant to today’s tenants, contact Van Vlissingen and Co.