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<\/p>\nThe tightening of available space at the tippy top of Chicago\u2019s office market is finally starting to send tenants down to the city\u2019s next class\u00a0of office properties.\u00a0<\/p>\n
More than\u00a090% of active tenants in the market today are looking for what JLL classifies as Tier 2 space, said Edgar Leon, senior manager of Chicago research at JLL.<\/p>\n
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Tier 1 assets have about 9.5% vacancy as Q3 comes to a close, and availability is around 8%, according to JLL<\/a>. As that continues to dwindle and little new construction is on the horizon,\u00a0tenant demand is spilling into the city\u2019s next rung of buildings, particularly in the West Loop, where much of that space is clustered.<\/p>\n There has been\u00a0about 172K SF of positive direct absorption of Tier 2 space so far in the third quarter, as well as roughly 30K SF of sublease absorption.\u00a0<\/p>\n JLL’s Tier 1 assets line up with traditional associations with modern, top-end Class-A: built in 2015 or later, featuring cutting-edge tech and in top locations. Tier 2 is closer to older Class-A or \u201cA-minus,\u201d defined as buildings built between 2000 and 2014 that are still competitive in the leasing market thanks to renovations, amenities and location.<\/p>\n Leon said\u00a0Merchandise Mart<\/a>\u00a0is a good example of an attractive Tier 2 building. As tenants have downsized and left sublease space in the building up for grabs, that space has leased up quickly because it\u2019s ready to use from the start.\u00a0<\/p>\n Total lease volume in Tier 2 space has grown for four consecutive years and was up 16% in 2024 compared to 2023, according to JLL. In 2025, Chicago is sitting at roughly 2.4M SF of Tier 2 leases signed and is on pace to surpass 2024.\u00a0<\/p>\n The acceleration could finally break loose a market that has been heavily dominated by leasing to trophy assets.\u00a0Tier 1 properties have absorbed more than 6.3M SF since 2020, sharply outperforming the market, while Tier 2 has shed 1.3M SF and the broader\u00a0central business district has lost nearly 10.9M SF.\u00a0<\/p>\n Tier 2 vacancy is around 19%, with availability around 18%. \u00a0<\/p>\n The number of tenants looking for high-quality Tier 2 space is\u00a0higher than average because demand is coming from both ends of the spectrum \u2014 trophy tenants having to settle\u00a0for less and Class-B tenants deciding they want more.\u00a0<\/p>\n \u201cPrepandemic, Class-B office tenants were generally satisfied with their space and often sought it out for cost-saving reasons,\u201d Leon said. \u201cToday, fewer Class-B tenants remain in Class-B offices, as firms increasingly recognize the benefits of upgrading their space.\u201d<\/p>\n The brokerage expects the trend of tenants filling the next best space to continue.\u00a0<\/p>\n Over the next five years, JLL projects Tier 1 vacancy to normalize, leading to significant spillover demand into Tier 2 buildings. In its \u201clikely scenario\u201d of minimal new office development, JLL sees Tier 1\u2019s limited availability funneling tenants into older but renovated stock, while the best case sees accelerated Tier 2 leasing if no new construction emerges and Tier 1 tightens further.<\/p>\n And where tenants go, investors will follow.<\/p>\n \u201cFrom an investment perspective, if you can find that building at the right discounted rate \u2014 because most of these buildings will require extensive renovations \u2014 if you can do that, I think that’s where you’re seeing the market go,\u201d Leon said.<\/p>\n The\u00a0West Loop<\/a>, in particular, stands to benefit from tightening vacancy at the top of the market. The submarket features about 60% of the total Tier 1 and 2 space in the city, according to JLL. The area benefits from its proximity to the Metra<\/a> and CTA<\/a> and its available parking, Leon said.<\/p>\n Nearly 55% of tenants searching for space in Chicago\u2019s CBD are targeting the West Loop, with 43% of them relocating from the Central Loop, according to JLL. New entrants to the market are focused on Tier 1 and 2 properties, and with a quarter of active tenants facing lease expirations between 2025 and 2027, JLL expects limited Tier 1 supply to send demand spilling over into Tier 2.<\/p>\n \u201cThe West Loop is the largest driver in office leasing,\u201d Leon said.\u00a0<\/p>\n A\u00a0property\u2019s proximity to the river also stands as a big boon to leasing.\u00a0<\/p>\n