After a strong second quarter, the East Loop experienced little net change in occupancy. Several tenants have leveraged soft market conditions to upgrade to Class A buildings. However, such tenants are from Class B or C buildings within the East Loop and do not generate new demand for the overall submarket.
The most notable example is energy company Integrys, who will vacate 196,000 square feet at 130 East Randolph and consolidate operations into 150,000 square feet at the Class A, 200 East Randolph. While this move strengthens the Class A segment, the vacancy rate for Class B buildings will rise, and another large block will hit the market. However, Class B will see some relief when OWP&P Cannon Design occupies 61,000 square feet at 205|225 North Michigan Avenue, as it relocates from 111 West Washington in the Central Loop.
CommonWealth REIT, who entered the East Loop by purchasing 233 North Michigan last quarter, has agreed to purchase 111 East Wacker for $151 million. The new owners face with the challenge of leasing 200,000 square feet that will become available next year.
The East Loop continues to have an uphill battle in gaining occupancy levels that match its competitive submarkets. Of the nine available, contiguous blocks greater than 100,000 square feet, five represent space that will be vacated in 2012, totaling nearly 1 million square feet. Also, short-term leases for Groupon and Obama for America are set to expire next year. Considering large block availability across the CBD and speculation regarding a new office development, it remains likely that the East Loop will continue to have a higher vacancy rate compared to the rest of the CBD.
The East Loop is bordered by the Chicago River (North), State Street (West), Lake Shore Drive (East), and Van Buren Street (South). It is inhabited mostly by advertising and media firms and corporate tenants.