By Ben Azulay, Bradford Allen
Downtown Chicago’s office market is entering a period defined less by the disruptions of recent years and more by the opportunities taking shape in their wake. Tenants are committing or recommitting to quality space, investors are acquiring assets at more compelling valuations and office-to-residential conversions are removing obsolete supply.
Leasing activity pulled back in the first quarter of 2026, with approximately 1.6 million square feet of direct deals completed, according to Bradford Allen’s first-quarter downtown Chicago office market report. That is down from just over 2 million square feet in fourth-quarter 2025.
Several notable transactions reflect a market increasingly defined by location and building quality. Global food brand Mars Snacking made the quarter’s most significant commitment, signing a new 169,816-square-foot headquarters lease at Fulton Labs, 400 N. Aberdeen St. in Fulton Market, while also absorbing the 37,672-square-foot former Kellanova space in River North as part of a broader expansion that will bring more than 600 new jobs and $100 million in investment to the city.
In its second expansion in the building in four years, IMC Financial Markets leased an additional 104,000 square feet at Willis Tower, bringing its total footprint there to approximately 250,000 square feet. Engineering, architecture and construction firm Burns & McDonnell extended its lease for 99,436 square feet at 200 W. Adams St., while law firm Bartlit Beck renewed and expanded at Court House Place, 54 W. Hubbard St. in River North, for 83,400 square feet. The Illinois Housing Development Authority signed the East Loop’s largest new deal since 2023, taking 72,645 square feet at Michigan Plaza at 225 N. Michigan Ave.
Direct vacancy was essentially flat at 24.8 percent, with approximately 300,000 square feet of negative net absorption. Yet the average gross asking rate for direct space held firm at around $41 per square foot, a signal that landlords in competitive submarkets are not yet capitulating on pricing. River North and the West Loop had the highest average per-square-foot gross asking rents with $45.99 and $45.38, respectively, while the East Loop had the lowest at $35.95.
Tenant preference for move-in-ready space continues to accelerate in the market. Close to one-third of downtown’s first-quarter leasing activity involved spec or pre-built suites. For all of 2025, spec and pre-built suites accounted for nearly 40 percent of leasing activity, a 200 percent increase from 2020.
Growing demand for turnkey office space suggests certainty of cost and speed to occupancy now rival location as decision-driving factors. This is particularly true for small and midsize users, as more than 75 percent of the first quarter’s deals were for less than 40,000 square feet.
Development activity
The central business district (CBD) construction pipeline has effectively gone dark with the delivery of The Fulton, 919 W. Fulton St., ending a new-supply cycle. For tenants in search of premier, newly built space, the market is quietly tightening. That dynamic is unlikely to reverse soon, and it may increasingly benefit building owners in sought-after submarkets over the next several quarters.
The most consequential development on the supply side, however, remains the ongoing transformation of the 1.2 million-square-foot Thompson Center. Google’s planned occupancy in 2027 will deliver premium renovated inventory to the Loop, and the tech giant has announced its intention to purchase the building outright. Investment research firm Morningstar is in advanced talks to lease roughly 300,000 square feet at the building, and Google is actively seeking to lease significant square footage to other third parties.
Office conversions are also reshaping Chicago’s inventory, with the city now home to the third-largest such pipeline in the country. Projects include the partial conversion of the Burnham Center at 111 W. Washington St. into up to 300 hotel rooms and residential redevelopments underway at 401 W. Ontario St. and 212 E. Ohio St.
As obsolete space is removed from inventory and repositioned as housing or other asset classes, the quality of available office supply improves. This should create a slow-building tailwind for landlords with well-maintained, amenitized buildings.
Investment trends
The investment sales market is showing early signs of a reset, with transaction velocity accelerating even as individual asset values remain well below prior peaks. Bradford Allen’s quarterly report shows that more than $320 million in assets traded hands in the first quarter alone, compared with $476 million for all of 2025. The average price per square foot across CBD transactions, including short sales and foreclosure settlements, was $89. This is up from the $83 per-square-foot average of the previous quarter, and a significant jump from one year prior, when investment sales closed for $65 per square foot on average.
Despite lower market-wide valuations, two marquee deals fetched the highest prices in years. In January, Real Capital Solutions acquired 401 N. Michigan Ave. for $132.5 million. Across the street from the former Thompson Center, 161 N. Clark St. sold for $125 million. Both of these deals illustrate that well-located, quality assets are still drawing investor interest.
The distress-to-opportunity playbook was on full display elsewhere. A joint venture acquired the 1.4 million-square-foot 175 W. Jackson Blvd. for $41 million, an extraordinary discount of nearly 87 percent from its 2018 sales price of $306 million. Discovery Partners Institute, a University of Illinois-affiliated technology research center, picked up 250 S. Wacker Drive for approximately $24 million, representing a roughly 75 percent discount from its 2011 valuation. These transactions reflect a market finding its footing at new basis levels, one in which well-capitalized buyers with clear leasing strategies can compete aggressively for tenants in ways previously unavailable to them.
The Chicago CBD office market in 2026 is not one market, but many. The fundamentals facing a dated building in the Central Loop bear little resemblance to those of a trophy tower in Fulton Market or the West Loop. That bifurcation is becoming more entrenched, not less, and it will define the competitive landscape for tenants and landlords alike for years to come. The market’s recovery is real, but it is unbalanced, and those in the most desirable assets and submarkets will feel it first.
Ben Azulay is president of national brokerage for Bradford Allen. This article originally appeared in the June 2026 issue of Heartland Real Estate Business magazine.