State Of The Chicagoland Commercial Real Estate Market
Last quarter, the Chicagoland commercial real estate market stopped waiting. This quarter, it picked sides. Capital, tenants, and developers all made choices in the last 90 days that show where they think this region is going, and some of those choices would have been unthinkable 18 months ago. A law firm is anchoring a new downtown office tower. Institutions are back on multifamily bid sheets. Farmland in Grundy and Will Counties is being underwritten for gigawatts.
State Of The Chicagoland Commercial Real Estate Market 2026 – Q3 – RFP 110 (Transcript)
This is the Q3 2026 read across five markets: office, industrial, multifamily, retail, and, for the first time as its own segment, land. Every number below is pressure-tested against the RFP Chicagoland Commercial Real Estate Index, our free aggregated data set at rfp.vvco.com. The Q2 2026 report and the Q1 2026 report are the baseline for everything that follows.
The backdrop: continuity and a moat for what is already built
The macro story this quarter is continuity. Steel and aluminum tariffs, tightened immigration enforcement pulling workers out of the trades, and elevated pricing on copper and conduit did not moderate. Instead, they compounded. As a result, Chicago construction costs are still running significantly above historical trends, and data center projects are actively bidding away the electrical and mechanical trades. Today even a construction budget drafted 12 months ago is stale.
However, it is important to note that rates are mildly friendlier than a year ago and debt is more available, but capital is still expensive relative to the pre-2022 era and the underwriting discipline has not loosened. Deals are clearing on in-place economics. The buyer pool has shifted too: family offices and private investors carried volume for two years, and institutions are now re-engaging, most visibly in multifamily but broadening across bid sheets, with tighter spreads between first and second place and faster LOI-to-close timelines.
Nonetheless, one structural point frames every section below. Replacement cost has moved so far above market value for most asset classes that new competition mostly cannot show up. If you own good, stabilized, leased real estate, the construction crisis is your moat. If you need to build, it is your problem.
Office: someone is putting a shovel in the ground
Here is a sentence nobody expected in 2026. Chicagoland may break ground on a new downtown office tower. Sidley Austin has committed to anchor Related Midwest’s proposed 45-story, roughly 968,000-square-foot tower at 725 West Randolph, taking more than half the building, with occupancy targeted for late 2030. One of the most sophisticated occupiers in the market looked at existing trophy inventory, looked at a pipeline with one delivery in 2026 and nothing behind it for years, and concluded the only way to get the space it wanted was to wait four years and build in the most expensive construction environment Chicago has seen. That is not the behavior of a dying market. It is the behavior of a market short of the product that matters, and we wrote about the other side of that signal when the deal was first reported.
The absorption data backs it up. CBD direct net absorption came in at a little over half a million square feet in Q2, the first positive direct quarter since 2023, and direct vacancy fell to roughly 24.4%. The aggregate still carries pain: overall absorption, including sublease, was modestly negative on some measures; Class A did all the lifting with over 300,000 square feet of positive absorption while commodity product kept bleeding, and part of the vacancy improvement is subtraction as obsolete buildings leave the inventory for residential conversion.
The 2026 lease rollover wave is now playing out in real time. Our own Chicago office deal flow splits into thirds: a third renewing on shorter terms after testing the market, a third moving up in quality and down in footprint, and a third still procrastinating while the trophy blocks they assume will be there in 12 months disappear. Importantly, concessions tell you where leverage is heading. In Class B and commodity product, free rent is measured in years. In genuine trophy product, concessions are quietly shrinking, and when the concession curve bends before the rent curve, the repricing at the top is over.
Move-in ready suites now account for close to 37% of CBD leasing this year, nearly double their 2023 share, as tenants pay to avoid construction pricing and trade timelines. The AI tenant thread deepened, with requirements pulling toward power density, cooling, and collaborative floor plates. Additionally, the suburbs deserve a more generous read than they get: suburban Chicago just posted its strongest first half of net absorption since 2018. Market-wide suburban vacancy still sits near 27%, but in Lake County, the I-88 corridor, and the Northwest submarkets, flight to quality is producing rent growth north of 6% year over year in the best buildings. Companies with suburban workforces are not debating whether to have offices. They are debating which building, and paying up for it.
Industrial: the doomer headline lasted two quarters
At the start of the year, the industrial bears finally had their headline: Chicagoland’s slowest absorption year since the Great Recession. Six months later, that narrative is dead. Net absorption through mid-year totaled roughly 5.1 million square feet, up 146% from the same point last year, and new leasing activity reached 21.8 million square feet, the strongest first half since 2022 and the third highest total of any market in North America behind only Dallas-Fort Worth and the Inland Empire.
A key metric in the asset class, vacancy sits in the high fours to low fives on our aggregated read, and even the most conservative published number leaves Chicago meaningfully tighter than a national average that just posted its first decline since 2022 and still sits around 6.5% to 6.9%. The O’Hare and Elk Grove corridors remain arguably the tightest major industrial submarkets in America. Big box is doing much of the lifting: RJW Logistics took 1.2 million square feet at Karis Park West in the Fox Valley, and Hyundai Translead signed for more than 900,000 square feet in the I-80 corridor. Deal sizes are growing, and terms are lengthening, with tenants signing seven- and ten-year commitments instead of the defensive threes and fives of the tariff uncertainty period.
The reshoring thesis keeps converting from theory to leases. The share of our site selection requirements that are production rather than pure distribution is the highest we have seen, and those users ask about power before rent. Buildings that can deliver heavy power price first; buildings that cannot compete on price alone. The utility conversation now happens before the rent conversation on every acquisition and site comparison we run.
The nuance underneath the headline is the same one we flagged in the small bay versus big box split, now inverted: Class A and big box are getting absorbed at a pace not seen since 2022, while vacant sublease space is up around 5.6% year over year, concentrated in Western Cook, the I-55 corridor, and the southern Fox Valley as tenants coming off mid-pandemic leases consolidate into newer buildings. Market average rent is up a modest 1% to roughly $7.55 per foot, but submarket dispersion is enormous, with corridors like Southern DuPage posting large gains while commodity corridors went flat or backwards. If you have an above average power requirement, start your search 12 to 24 months out. The users competing for the same capacity are willing to pay more than you are.
Multifamily: a metro that structurally cannot oversupply
Chicago is about to finish a year in which it delivers fewer new apartments than at any point since 2012, during a national affordability crisis. That single fact is the whole thesis for why institutional capital that ignored this market for a decade is suddenly circling. Occupancy sits around 94.9%, well above the ten-year average. Effective rents are up roughly 3.2% year over year, among the strongest of any major metro. Renewal conversion crossed 60% earlier this year, a multi-year high, which means fewer units even reach the market and operators are having their best expense-side year in a long time.
The national picture is the mirror image, with record-high vacancy and Sun Belt metros still digesting 2021 and 2022 deliveries. Chicago is not outperforming because demand exploded. It is outperforming because roughly 9,900 units under construction, about 1.6% of inventory, is the thinnest pipeline in the country, and for the first time in memory, 53% of that pipeline is suburban because ground-up urban development barely pencils. Office-to-residential conversion downtown has moved from curiosity to a measurable share of scheduled deliveries. The office market’s losers are becoming the housing market’s pipeline.
Demand has a structural anchor in a frozen for-sale market. Homeowners sitting on sub-4% mortgages are not surrendering them, so the starter home inventory that historically pulled higher-income renters out of Class A apartments is not there. The renter who would have bought at 32 is renting at 36, renting nicer, and renewing. Development math explains the rest: multifamily construction costs are up 30% from five years ago and labor nearly 20%, so the rent a generic mid-rise needs is meaningfully above what the market pays outside a handful of premium submarkets. Transaction activity is climbing past last year; larger allocators are moving from underwriting to closing on stabilized Class A and value-add Class B in the North Lakefront, the Northwest Side, and Lake County corridors, and cap rates on well-located Class B sit in the low to mid sixes with room to compress. The caveat from last quarter is truer now: the longer rents outrun incomes, the larger the political risk premium. Rent regulation and transfer tax conversations are getting louder, and underwriting should carry a line item for both.
Retail: there is no Chicago retail market; there are two
Chicagoland retail rents are growing, vacancy is near historic lows, and institutional money is buying grocery-anchored centers with conviction. At the same time, leasing is slower, absorption has been negative in stretches, and consumer spending is visibly tired. Both are true because of scarcity. Nobody has built meaningful retail in this market in a decade, and demolitions and conversions keep removing obsolete space faster than anyone adds it. Metro vacancy is holding in the low to mid-fives, with rent growth cooling to roughly 1.5% to 2.5%.
The category split is textbook: necessity retail from grocery to food and beverage barely winced, while discretionary categories like apparel and electronics are struggling, increasingly in big box centers that depended on them. For owners, every dark box in a decent trade area is a backfill opportunity rather than a vacancy spiral, with medical, fitness, grocery, and experiential users calling before the closure announcement finishes. Inside the city, the divide is stark. Office- and tourism-dependent districts in the Loop and along the Magnificent Mile still carry double-digit vacancy, while Fulton Market and River North stay tight, with trophy corridors commanding $90-plus rents. Loop retail is a 2028 story being set up in 2026: the conversion wave will put thousands of residents on blocks that never had them, and they will need groceries, gyms, and dinner. Watch Bally’s permanent casino opening in River West and the continued walkable downtown renaissance in Lake County and the North Shore, where retail is now underwritten as the layer that leases the apartments above it. One caution: regional mall exposure dressed up as redevelopment should be priced as a risky land play, because that is what it is.
Land: the most violent repricing in the market is happening in farmland
Parcels that traded at $15,000 to $60,000 an acre as agricultural ground are now being underwritten by data center developers with gigawatt ambitions. Established industrial land near O’Hare runs a quarter to half a million dollars an acre. The same dirt can be worth five times that depending on one question: can power be delivered.
Twelve months ago Chicagoland data center demand was a directional argument. Now look at the tape. Tract paid roughly $51.5 million for 343 acres in Morris, fully zoned with a ComEd transmission agreement supporting one gigawatt at full build-out. Joliet approved the annexation of 795 acres for a roughly $20 billion, 24-building campus targeting 1.8 gigawatts, the largest data center development in Illinois. Microsoft has assembled roughly 500 acres in Plano. Capacity under construction across the metro has jumped triple digits year over year while legacy hubs like Northern Virginia flatten against their own transmission walls.
Study the pattern. Tract did not buy a building; it bought an entitlement plus a signed transmission agreement. Joliet’s first milestone was not a lease; it was an annexation vote. The asset being created is permission: zoned land with contracted power on a defined timeline. The dirt is almost incidental, which is why the single most valuable document in Chicagoland real estate right now may be a utility will-serve letter, a theme we explored in valuing data centers and adjacent properties and why smart investors are buying dirt.
This year also showed the other side. Barrington Hills pushed out a $2 billion proposal after community opposition, Naperville rejected a project over power availability, and resistance on noise, water, and utility bills is organizing across the Collar Counties into Northwest Indiana. The state paused new data center incentive agreements as of July 1. Entitlement risk is now the primary risk in this asset class, ahead of capital and ahead of demand. Communities that organize their zoning, utilities, and engagement to deliver, with Morris as the model, will capture a wildly disproportionate share. For most investors, the play is still not the data center itself but the halo: land in corridors where utility infrastructure is being upgraded, industrial buildings with existing heavy power that suddenly screen for a dozen new users, and infill parcels near new substations, because a substation built for a campus de-risks every parcel around it.
The five numbers that matter
One, office: 968,000. The square footage of the tower proposed at 725 West Randolph, more than half committed by a single law firm before a shovel hits the ground, in a market the national press still calls dead. Two, industrial: 21.8 million square feet. New leasing through mid-year, the strongest first half since 2022. The doomer headline lasted exactly two quarters. Three, multifamily: 4,000. Fewer than 4,000 new units delivering metro-wide this year, the smallest pipeline since 2012, and units not under construction today cannot exist before 2028. Four, retail: 30 versus 5. Roughly 30% vacancy in the Loop against sub-5% in strong neighborhood corridors, a 25-point spread in the same city. Five, land: 1.8 gigawatts. The targeted capacity of a single approved campus on 795 acres that was farmland 18 months ago, roughly the output of a nuclear reactor committed to one real estate project.
Four of those five numbers point the same direction: scarcity of prime space, modern logistics, housing, and power, all downstream of a market that has become extraordinarily expensive to build in. What is already built and already powered wins. The fifth number, the retail split, is the warning label. Scarcity only protects the assets on the right side of the line, and the entire job in this market is knowing exactly where that line runs through your portfolio. The full aggregated data set behind every number here is live, free, and updated regularly at rfp.vvco.com.
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 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.