Chicago's office space woes continue
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The "Flamingo" sculpture at Federal Center Plaza in front of the Kluczynski Federal Building in Chicago. Photo: Carol M. Highsmith/Buyenlarge/Getty Images
Chicago's downtown rebirth has taken a hit after the federal government and other high-profile companies announced decisions to sell and relocate from significant buildings.
Why it matters: The Loop and the River North area are the economic engines of the city.
The latest: Chicago's premier tech incubator, 1871, announced it is leaving the Merchandise Mart after 13 years. The incubator, founded by now-Gov. JB Pritzker and fostered by then-Mayor Rahm Emanuel, was the anchor of the renovation of the Merchandise Mart in the 2010s.
- Since then, companies like Motorola Mobility, Allstate and Grainger have set up shop in the historic design center.
What they're saying: "As an organization, we have continued to perform, but not at a level that allows us to sustain the real estate commitment that once served 1871 so well in the pre-COVID years," CEO Betsy Ziegler said in a staff memo obtained by the Tribune.
Zoom in: 1871's decision to leave puts vacancies back in the spotlight. It comes on the heels of the Trump administration's decision to sell some of the Loop's federal buildings, namely the Kluczynski and Metcalfe buildings near Federal Plaza, while private companies like Ken Griffin's Citadel are leaving their offices for a smaller footprint.
- "It wouldn't be helpful to our efforts in revitalizing the Loop," Michael Edwards, president and CEO of Chicago Loop Alliance, said about federal buildings potentially being sold.
Zoom out: The depressed commercial real estate market isn't helping. Buildings aren't selling for anywhere near the price they were bought for, forcing landlords to recoup their money in higher rents or foreclose on properties.
- Case in point: The old Montgomery Ward warehouse building in River North once was heralded as a tech hub, featuring the headquarters of Groupon. Last month, the building sold for a mere $89 million after being purchased for $510 million in 2018. That's a staggering 83% loss.
Between the lines: The downtown reshuffling comes at a tricky time as companies push to get workers back in offices full time. According to return-to-office data for January, Chicago office visits were down 47% from January 2019. That's a huge difference from December 2024, which was 31% less than December 2019.
- The report says weather and holidays played a role, too.
- Another report shows that downtown office buildings had record-high vacancies at the end of 2024.
Yes, but: While many of these buildings could be in danger, downtown businesses are still excited about a future tenant: Google.
- The tech giant is currently renovating the Thompson Center, which will serve as its Chicago headquarters for over 1,000 workers.
- Other businesses are slated to open up nearby to capture some of the foot traffic, while Google itself is looking for retail tenants for its new building.
Reality check: These endangered buildings aren't just office spaces. The Mies van der Rohe-designed federal buildings, the historic Montgomery Ward building and the Merchandise Mart are significant parts of Chicago's world-renowned architecture.
What we're watching: Employers like the federal government are pushing to make all their employees come back to the office in 2025.
- At the same time, they are shrinking their office footprints to cut back on costs.
- It's unclear where all the employees will go.