Key Takeaways
- Chicago’s commercial property transactions dropped 22% in Q1 2025 due to economic uncertainty and shifting office space needs.
- Michigan Avenue retail vacancies hit a record 17%, underscoring the challenges for brick-and-mortar stores.
- The industrial real estate sector remains a stronghold with steady demand and solid returns.
CHICAGO, IL – The Chicago commercial real estate sector is showing continued signs of distress, with a new report revealing a notable drop in transaction volume and rising vacancy rates across office and retail spaces.
Investor Hesitation, Market Oversupply Drive Decline
A study released today by CBRE indicates that Chicago’s commercial property deals plummeted 22% in Q1 2025 compared to the same period last year.
The report attributes this to a cautious investor sentiment fueled by high interest rates, economic uncertainty, and evolving office space needs in a hybrid work era.
In downtown Chicago, Class B and C office properties are struggling the most, facing occupancy levels below 60%.
Retail has also taken a hit, with Michigan Avenue storefronts seeing a spike in turnover as national chains pull back on expansion plans.
CBRE notes the city’s once-coveted “Magnificent Mile” is now facing a 17% vacancy rate — an all-time high.
Industrial Sector Remains a Bright Spot
While office and retail reel from uncertainty, the industrial sector continues to attract interest.
Warehouse space near Chicago’s transportation hubs is in high demand, bolstered by the ongoing strength of e-commerce and regional distribution networks.
The average cap rate for industrial properties is now hovering around 5.8%, reflecting solid investor confidence.
Assessment
Chicago’s CRE market is undergoing a sharp transformation, with office and retail properties facing declining investor appetite.
Real estate investors should proceed with caution in these segments while watching for potential repositioning opportunities.
Industrial, however, continues to offer a strong hedge, and for now, remains the Midwest’s most resilient sector.
