The diversification of the economy supported the commercial real estate of the city, especially in the center. The sublease market has been growing during this year, which indicates massive staff reductions and a decrease in the activity of enterprises.
In the direct rental market, demand, as before, exceeds supply, which indicates the commercial stability of this segment.
The indicator of empty office space remains low – 11%, which is 6% lower than in 2005. In total, the commercial real estate market of downtown Chicago has 227 buildings. This is 11.07 million square meters, 4% of which have not yet been built. In the third quarter, the average rental cost per square meter dropped to $1.85, according to a study by Torto Wheaton Research.
Sales of commercial real estate rose in the fourth quarter of 2008, mainly due to American investors. According to David Hanna, president of the Chicago Association of Realtors, now the market is in a sense more suitable for transactions than, for example, six months ago.
The Chicago residential real estate market also remained “viable”. A large number of students, young professionals and parents whose children already live separately continue to move to the city center. They want to live there to be closer to all the benefits of civilization – they need a place where shops and restaurants are at hand, they don’t want to depend on a car, says David Hanna.
According to him, in general, the retail real estate market has weakened due to an oversupply, although demand has remained in some “niche” segments. David Hanna noticed that a number of companies specializing in the sale of boutiques, small restaurants and grocery stores in some areas of the city continue to work successfully. There are certain “bright spots” in the market, where demand has remained at a good level, it is only necessary to study the demographic characteristics of a particular area.
Of course, Chicago is not completely protected from the all-American crisis. According to David Hanna, excessive development in the city center has created an oversupply. Sofia Dirmizi, in turn, sees the main danger in the crisis for the city in the increasing number of layoffs. Legal and investment firms are cutting staff the most. Suburban areas, where such large tenants as Countrywide and Ameritech, who have not been spared massive cuts, have suffered the most from this.
Problems in the US credit market make several high-budget projects in Chicago unprofitable. In particular, the construction of The Spire complex, which was built as the tallest skyscraper in the world, has been suspended, and the construction of the 90-storey Shangri-La Hotel has been frozen due to liquidity problems.
Local tax policy also creates certain difficulties for the real estate market. Now property owners in Chicago pay an average tax of $0.62 per sq. m, or 25% of rental income. This is the highest rate in the United States – according to the report of the Association of both Owners and Managers of Real Estate in Chicago (Building Owners and Managers Association of Chicago). The sales tax in Chicago is also the highest in the country – 10.25%, especially in the city center – it is 1.25% higher there. Many key companies in the market, such as Carson Pirie Scott and Lord & Taylor, were forced to completely switch to neighboring counties, where taxes are 2-3% lower.