Why Investors Are Whispering About Chicago’s Commercial Real Estate Market? (2025 Q3) – RFP 76 Transcript
Introduction
Gordon Lamphere (00:00): In the real estate market, you’re starting to hear some numbers and narratives that don’t quite line up. Downtown office vacancy is at record highs, while just a few miles away, industrial availability is nearly zero. Investors are circling office towers, not for the leases, but for the dirt underneath. Warehouses look full on paper, yet landlords are sharpening their pencils across the market and making concessions.
There are big moves happening in quarter three of 2025, and most people aren’t connecting the dots. Why are downtown office towers turning into apartments while airport submarkets can’t build fast enough? Why are suburban landlords offering a year of free rent just to hold tenants? And why is outdoor storage, basically fenced lots of asphalt, suddenly a $200 billion asset class?
After speaking with some of the industry’s top voices, a lot of our listeners reached out wanting to hear directly from me. So here it is. As a broker who closes over 100 transactions a year, I’ll walk you through what I’m actually seeing in the data, on the ground, and across the table from both tenants and investors. We’ll break it down by asset class: office, industrial, multifamily, IOS, and redevelopment. Then we’ll zoom into regions: downtown, O’Hare, Elk Grove, and the suburbs, including Lake County. Along the way, I’ll highlight where the opportunities really are and where the risks are hiding.
Downtown Office: A Land and Conversion Play
Let’s start with office, because that’s where the cracks and the opportunities are most obvious. Downtown vacancy is hovering around 27%. That’s a record. If you own commodity office space in the Loop, you’re not really competing for tenants anymore. Ultimately, you’re competing for a new future. The city knows it, which is why the LaSalle Street program is already pushing for more than
Gordon Lamphere (02:27): 1,700 new units of housing through conversions. And 30 North LaSalle itself is on track to deliver 349 apartments, with more than 100 of them affordable.
So for investors, this isn’t about trying to underwrite 2010 office rents. It’s a land and conversion play. Your return, for most of the market, ultimately comes from TIF dollars, zoning, and the ability to execute a complicated repositioning. If you own a trophy asset, or you’re in Fulton Market, yes, there’s still capital for office deals, but Fulton is trading like another city entirely. For everything else, it’s survival, and it’s survival of the most creative.
For occupiers, this is the most tenant-friendly market in 20 years. If you’ve got a lease coming up, you can capture tenant improvement and free rent packages at levels we haven’t seen since the financial crisis. A-minus and A towers are still in competition mode, but in B and C stock, you can write your own coupon.
O’Hare Office: Resilience and a Class Divide
O’Hare’s office market tells a very different story than downtown. While the central business district is posting record vacancy near 27%, the O’Hare submarket is holding much firmer, closer to the 18 to 19% range. Those aren’t great numbers historically, but they’re significantly better than what you’re seeing downtown, or even in parts of the north suburbs.
Why the relative resilience? Proximity to logistics is part of it, but the real differentiator is infrastructure. Reliable power capabilities in the O’Hare corridor support everything from aviation to data-heavy occupiers. That’s a stabilizer for the office market. And with the $8.5 billion O’Hare 21 terminal modernization project underway,
Gordon Lamphere (04:48): corporate travel and international business demand are expected to climb, creating long-term tailwinds for high-quality office properties nearby.
Ultimately, it comes down to rent spreads, which prove the big divide. Class A office around O’Hare is still transacting in the low 30s per square foot gross, showing real staying power. Meanwhile, Class B and C space has slipped into the low 20s and is still offering high levels of concessions just to keep tenants in place. That gap tells you everything. Class A has a future, and Class B and C are already sliding toward eventual redevelopment.
Class A buildings with visibility, modern systems, and direct access to the airport are the only assets positioned to capture that upside. They’ll benefit from redevelopment dollars, better rent roll stability, and spillover demand from the airport renewal. Class B and C properties, however, are already showing weaker absorption and rising concessions. Over the next cycle, many of them will get repositioned or razed entirely. Their eventual value is primarily in the land, not the lease roll.
For investors, lean into Class A at O’Hare. It’ll ride the tailwinds of the airport renewal and logistics-driven demand. If you’re holding B or C product, underwrite it as a dirt play for now, or at the very least a redevelopment, because the clock is ticking.
For occupiers, O’Hare is one of the very few submarkets where location still matters. Class A space offers brand value, stability, and access to a global hub. B and C space may look cheaper,
Gordon Lamphere (06:54): but tenants should be cautious. Those buildings are most likely facing major disruption when landlords pivot to redevelopment.
Suburban Office: Flight to Quality
The suburban office market is facing the same structural divide we’ve seen across metro Chicago, but in some ways it’s even more pronounced. Overall suburban vacancy is running close to 28 to 29%, according to CoStar’s metrics. That means more than one in four suburban offices is sitting empty. It’s basically on par with downtown, but unlike the CBD, the suburbs don’t have the same pipeline of publicly backed conversions to soften the blow.
So what’s the headline here? It’s flight to quality. Tenants are moving into better properties, and the weaker buildings are getting left behind. Take Oak Brook, for example. It’s one of the healthier suburban submarkets because it has strong retail adjacency, amenities on most of its campuses, and easy expressway access. Class A space there is still achieving gross rents in the upper 20s, and vacancy is materially below the suburban average. In submarkets like Oak Brook in particular, landlords are leaning into upgrades, and it’s paying off.
Now compare that to the north suburbs, where a lot of older buildings with deep floor plates are struggling. Vacancy there is running well above the suburban average, and Class B and C product in particular has slipped into the mid-teens per square foot, with very generous concessions. In some cases, landlords are offering a year or more of free rent to keep tenants in place.
And here’s something you won’t see in CoStar. Based on conversations I’ve had, some of them
Gordon Lamphere (09:15): behind NDAs, I can confirm that the north suburban market is likely to see millions of square feet quietly start to exit the office marketplace altogether. Those properties will transition into a combination of residential and industrial uses over the next few years. For investors, that means holding Class B and C suburban office is, in some cases, essentially holding covered land. For tenants, it means you need to think twice about signing long-term in a building that might not stay office for very long.
For investors, this is a bifurcated suburban market. If you’ve got a true Class A asset with good bones, natural light, structured parking, and updated systems, you can still win tenants relocating out of the city or from weaker suburban corridors. But if you’re holding obsolete product, the math is very different. It’s most likely a redevelopment play.
For suburban occupiers, this is a rare window of opportunity. In stronger nodes like Oak Brook or Schaumburg, you can lock in stable, high-quality space at a fraction of the downtown price. In weaker nodes like the north suburbs, landlords will effectively pay you to occupy space. Either way, the balance of power is in the tenant’s favor, with improvement allowances, rent abatement, and flexibility clauses all on the table.
Industrial: Normalizing, Not Falling
And while millions of square feet of suburban office are quietly preparing to exit the market, O’Hare and Elk Grove industrial can’t build fast enough. That contrast really tells the story of where demand is flowing. So let’s dig into the industrial market.
Let’s step back and look at the region as a whole. Chicago is still the biggest industrial hub in the country, with over 1.4 billion square feet of inventory. Vacancy right now is running around 5.4 to 5.9%, depending on which data set you pull from.
Gordon Lamphere (11:43): That’s higher than the crazy-tight 3% range we saw a couple of years ago, but it’s still well below the long-term average. Translation: we’re not in free fall. We’re normalizing. Rent growth has cooled, absorption has slowed, and sublease space has ticked up a bit, but the base of demand is still very strong. This isn’t a market that’s falling apart. It’s a market that’s catching its breath.
For investors, gone are the days of underwriting 10% annual rent bumps and getting away with it. Now you need discipline. You’ve got to look at location, user mix, and how utilities line up. The most important takeaway of this episode is that we’re starting to see the outlines of the next real value play, and it’s not obvious to everyone yet. I’ll come back to that toward the end of the episode.
For occupiers, the good news is you don’t have to panic anymore. In 2021 and 2022, tenants were grabbing anything they could, often making decisions in weeks. Today, you’ve got breathing room. You can tour a little more, negotiate a little harder, and lock in more flexibility. What you probably won’t see are massive rent cuts, as landlords are still protecting rate cards. But what you will see are richer concessions generally across the board, including TI dollars and lease terms that actually bend toward your business’s needs.
Elk Grove Village and the O’Hare Corridor
Now let’s get to the fortress: Elk Grove Village and the O’Hare corridor. Vacancy here was just 1.96% in quarter one of 2025. That’s basically zero. And remember, you can’t just go out and build another 50 million square feet in Elk Grove. It’s built out, so supply is permanently constrained. Add to that all the infrastructure that’s going in. ComEd is already constructing a new
Gordon Lamphere (14:02): 260-megawatt substation to feed a massive data campus near O’Hare. That’s the scale of demand we’re dealing with: not just warehouses, but power-hungry cold storage and data tenants piling in. On top of that, the $8.5 billion O’Hare modernization project is underway, which means more passenger traffic, more international cargo, and more corporate business headed to Elk Grove and O’Hare. The halo effect of that expansion only makes O’Hare-adjacent properties more valuable.
So for investors, Class A industrial in Elk Grove and O’Hare isn’t just stable. It’s gold-plated. Scarcity, power, and airport adjacency keep driving up value. If you own land here with entitlements, you’re sitting on long-term premium assets.
For occupiers, if you need space in this corridor, you can’t wait until you need it. You have to pre-commit. Utility upgrades alone can take 18 to 24 months, so if your business is power-intensive, you need to plan now, not next year. And if you don’t absolutely need O’Hare, you might be better off looking north or west, because competition here is fierce and pricing reflects it.
Lake County: The Execution Story
Now let’s talk about Lake County, which I think is one of the more underrated success stories in Chicagoland. Since 2021, Lake County has seen $1.78 billion in investment, creating nearly 4,000 new jobs and retaining another 2,700. That’s a big win for a suburban county, and it’s not just numbers. It’s a whole wave of new activity in manufacturing, life sciences, and advanced logistics.
Why? You’ve got pro-growth municipalities that actually want development. Permitting is faster,
Gordon Lamphere (16:19): deals move more smoothly, and investors don’t get tied up in endless approvals. You’ve also got a serious talent base, especially in life sciences. Abbott, AbbVie, and their ecosystems are all here, and you’ve got great connectivity north into Wisconsin and south into Chicago, without the congestion and land pricing you see around O’Hare and Elk Grove.
So for investors, Lake County is the execution story. It’s not the flashiest market, but if you want to close a deal and actually get it built, this is where you go. There’s also real opportunity to modernize older industrial product and reposition it for advanced users, particularly in the life science space.
For occupiers, Lake County gives you a cost advantage. It’s more affordable and less congested than O’Hare, but you’re still within striking distance of the whole region. If you’re a life science tenant, the clustering effect here makes hiring and your supply chain easier. And for logistics players, it’s a solid regional node with quick access to both Milwaukee and Chicago.
So here’s the industrial takeaway. It’s still the healthiest sector in the region. Vacancy has ticked up, but only to sustainable levels. O’Hare and Elk Grove are landlocked powerhouses with no end in sight. Lake County is growing fast because it can actually get deals approved and delivered.
But I’ll say this: the real story isn’t just in today’s leases or today’s rent rolls. The smartest money of all is already chasing something else: the infill redevelopment play. I’ll circle back to that when we wrap up this episode, because it ties everything together, office, industrial, and land, in a way that most people
Gordon Lamphere (18:45): aren’t fully appreciating yet. But ultimately, that’s the biggest play in the room.
Multifamily: Digesting New Supply
Let’s shift into multifamily, which has been one of the steadier asset classes this year. In Chicago, the median rent is about $1,812 as of September 2025. That’s down half a percent month over month, but still up 4.3% year over year. So we’re not seeing a collapse. We’re seeing a market that’s digesting a lot of new supply.
Nationally, 2024 was a record year for completions, and now in 2025, deliveries are slowing down. Projections are down about 21% from last year. That matters because as the pipeline burns off, rents are likely to firm back up, holding into 2026 and 2027.
So for investors, this is a moment to position. You’re not buying at peak rent. You’re buying as supply crests, as the city’s conversion pipeline grows, and as projects like 30 North LaSalle and the broader LaSalle Street corridor are reimagined. We’re also starting to add unique product that will revitalize parts of downtown Chicago.
For occupiers, if you’re a renter, you’ve got a short-term window of potential leverage. Concessions are back on the table in some Class A buildings and submarkets. But long term, expect pricing to strengthen again as supply continues to be relatively constrained.
Industrial Outdoor Storage: The Stealth Outperformer
Now let’s dig into IOS, industrial outdoor storage. This is one of those corners of the market that doesn’t look glamorous, but it’s been a stealth outperformer since 2020. At the national level, IOS is already pegged at around $200 billion in value. Vacancy is usually half of what you see in bulk warehouse,
Gordon Lamphere (21:07): and rents have consistently outpaced warehouse growth for the last five years. That performance comes down to one thing: scarcity. You can always build another warehouse somewhere on the edge of the metro, but you can’t just wave a wand and create new truck yards. Zoning boards hate them, neighbors fight them, and most municipalities push the land toward higher tax uses. Once a site is paved, fenced, and entitled for IOS, it’s basically irreplaceable.
For investors, this is about as clean a cash flow play as you can find. IOS has sticky tenants, low capex, and minimal obsolescence risk. Landlords hold all the cards because tenants can’t relocate easily. That’s why institutional capital has started pouring in. They see consolidation potential in what has historically been a mom-and-pop sector. If you can assemble infill IOS portfolios, you’ve got something that trades at a premium.
For occupiers, this is a brutal market. Moving a truck yard is a nightmare. You’ve got permitting, security, fleet logistics, and employee access to worry about. That’s why renewal probabilities are sky high. Once you’re in, you tend to stay. Landlords know this, and they price their IOS accordingly. If you need IOS, my advice is simple: secure it early, lock it down long term, and plan renewals years ahead.
Now let’s localize this to Chicago. Around O’Hare and Elk Grove, industrial vacancy is under 2%, and that tightness spills directly into high IOS pricing. If you’ve got a legal yard near the airport, you’re holding a gold mine. Logistics firms and freight forwarders are fighting for those sites,
Gordon Lamphere (23:26): and entitlements for new yards in Cook County are almost impossible to obtain. Municipalities want retail or residential or office. They don’t want trucks idling on the streets. That’s why existing yards trade at an absolute premium.
Head into Lake County, and the story is slightly different, but similar in many ways. There’s more land, and in some municipalities, a little more willingness to entitle IOS. But even there, the best infill sites, close to tollways with good truck geometry, are all getting snapped up.
Land and Redevelopment: The Glue
Now let’s talk about land and redevelopment, the glue between all the asset classes we’ve talked about. When we talk about the future of underperforming office or obsolete retail, a lot of people immediately picture redevelopment as heavy industrial use or massive IOS yards. The reality is that’s rarely the end game. Redevelopment in Chicago is almost always about matching less invasive, clean, community-compatible users, which are easier to entitle, with communities that fit their use.
The best example is the Allstate campus in Glenview. That’s a 232-acre site that didn’t turn into a truck yard. It became a clean logistics campus anchored by blue-chip tenants in modern, clean distribution space. That’s a redevelopment that fit the neighborhood, and it leveraged infrastructure without sparking the kind of resistance you would see from a truck yard.
Downtown Chicago tells a very similar story. Look at LaSalle Street Reimagined. That program isn’t about heavy uses. It’s about multifamily in a neighborhood that fits a multifamily use. Office towers with outdated floor plates are being repositioned into apartments that create more than 1,700 units of housing in the Loop. And that’s not
Gordon Lamphere (25:47): just redevelopment. That’s urban revitalization, and it’s consistent with the community in general.
So for investors, this is where the real upside lies. The future isn’t in fighting municipalities for entitlements for invasive uses. The real money is in buying obsolete office or retail at land value and then working the approval process for multifamily or clean industrial that’s compatible with those neighborhoods. Those projects only get built if the community and municipality support them, and that support means a faster approval process, lower entitlement risk, and higher long-term value.
So what does all of this mean for occupiers? Redevelopment matters to them too, because tenants benefit when obsolete properties get turned into modern, right-sized space. Manufacturers and logistics users see new infill facilities as efficient, often with efficient layouts, and renters ultimately get higher-quality product for better value. So even as office tenants start to lose some options because the market is contracting, what we’re starting to see across the Chicago metro area is a matching of demand with supply, and overall a much more equitable market for occupiers across the board.
The Story of Q3 2025
Here’s the story of Q3 2025: the market is splitting. Downtown office vacancy is stuck near 27%, and commodity towers are most likely going to end up as land plays and housing conversions. By contrast, O’Hare’s office market is steadier, but at the same time, you see a big divide between Class A and Class B, and ultimately those Class B buildings, which are increasingly granting concessions, will also end up as redevelopment plays. The suburban office market is just as divided, with strong nodes like Oak Brook still attracting strong tenancy. However,
Gordon Lamphere (28:07): you’re going to see a lot of supply in weaker areas start to come off the market. Industrial remains the backbone of the market, with vacancy in the mid-fives. Elk Grove and O’Hare are under 2%, and Lake County is thriving with pro-growth execution. Multifamily rents are generally steady, and IOS is scarce and sticky, with institutional money flowing in at high rates.
Ultimately, the real value play will probably end up being infill redevelopment into less invasive uses, like multifamily, clean industrial, and flex space, that neighborhoods and municipalities will support. I’m already tracking several of these opportunities, some opening up development potential, both on and off market.
If you want more insights like this, reach out to us at vvco.com and subscribe to The Real Finds Podcast. You can find us on YouTube, Spotify, or wherever you get your podcasts, where I sit down with industry leaders and show you where the real opportunities are.
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 Q3 2026.