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CoStar Market Insights: River West Office Landlords Brace for Supply Wave

Inventory Expected to Grow by 20% This Year
April 9, 2018
The River West submarket will be at the forefront of oversupply risk in 2018.

Currently, the submarket has more office square footage under construction than any other Chicago submarket. Not only will more than 1.5 million square feet of office space deliver in River West in 2018, but when it does, the office market will have grown by more than 20 percent in total inventory.

The potential for oversupply is accentuated by the fact that vacancy is already elevated. While River West will gain more new supply in 2018 than any other year, the submarket has not been immune to inventory increases this cycle.

As a result of prior speculative deliveries, which remain vacant today, vacancies are about 2 percent above the historical average. Moreover, over half of the under-construction supply is available. While the uptick in speculative construction highlights increases in developer confidence, it also has the potential to unhinge vacancies in 2018.

On the plus side, tenant appetite for top of the line space downtown is at a premium. Even in the face of quantities of new supply, Downtown vacancies have remained fairly healthy, at about 10 percent.

Furthermore, of the 3 million square feet to deliver since 2016, less than 20 percent remains vacant. However, River West has never had this much deliver at once, so there is no historical precedent to compare the current wave of supply.

The best year for absorption this cycle was in 2015, when the submarket absorbed more than 400,000 square feet. But the submarket never has needed more than one million square feet in net absorption to keep vacancies in check.

CoStar Market Insights provides a snapshot of recent real estate trends. The CoStar Market Analytics team monitors commercial and multifamily real estate across 390 metro areas, with a granular understanding of the projects, players and economic trends that move these markets.

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