Suburban office distress deepens

Suburban Chicago has been tearing office buildings out of the market, and the empty-space problem still got worse in the first quarter of 2026. Crain’s reported that suburban inventory fell to its lowest level since before the Great Recession, while vacancy still set another record. (chicagobusiness.com) The new record was not a small move. CBRE said direct vacancy rose to 28.7 percent in the first quarter of 2026 from 27.8 percent at the end of 2025, with negative net absorption of 430,887 square feet as more space came back than tenants took. (cbre.com) A different way to count the same problem looks even harsher. The Real Deal said overall availability in the suburbs crept above 33 percent in early April, after ending 2025 at nearly 33 percent. (therealdeal.com, therealdeal.com) That gap between “vacancy” and “availability” matters because availability includes space that tenants still lease but are trying to unload. In plain English, a company can still be paying rent on a floor it no longer wants, so the market feels looser than the vacancy rate alone suggests. (therealdeal.com, cbre.com) The supply side has been shrinking for years. Bisnow said about 6.3 million square feet of suburban Chicago office space has been removed from the market in the past six years, and there is no new suburban office space under construction. (bisnow.com) That sounds like it should help landlords, but it only helps if the buildings being removed are the same kind of buildings tenants still reject. CoStar said demolitions and conversions are reducing office inventory growth to zero nationally, yet much more obsolete space is still likely ahead. (costar.com) The suburban Chicago market has a quality problem as much as a quantity problem. The Real Deal tied the record vacancy to remote and hybrid work and to a large inventory of aging, obsolete buildings that no longer fit what tenants want. (therealdeal.com) Tenants are still leasing, but they are choosing very selectively. Cushman & Wakefield said new suburban leasing reached 1.1 million square feet in the first quarter, up 16.2 percent from the prior quarter, while Colliers said demand is staying focused on Class A buildings, which are the newest and best-located offices. (cushmanwakefield.com, colliers.com) That creates a split-screen market. A modern building near transit or highways can still win tenants from older rivals, but every move into a better building often leaves a weaker building behind with even less chance of recovery. (colliers.com, cbre.com) Prices are starting to reflect that. CBRE said suburban asking rents slipped 1.1 percent in the quarter to $25.92 per square foot, while recent sales covered by The Real Deal included mostly vacant properties being marketed or traded from a deeply impaired position. (cbre.com, therealdeal.com) That is why simply waiting for “less supply” to fix the suburbs is not working. The buildings coming out are not yet enough, the buildings left behind are often the wrong product, and the usable path to new value is getting narrower: either buy at a very low basis, or spend real money changing the building into something tenants or residents actually want. (therealdeal.com, costar.com)