Construction Activity vs. Workforce: Out of Balance

The financial recession of 2008 – 2009 resulted in a 39% decrease in the city’s construction workforce between 2008 and 2011. Simultaneously, the office commercial real estate industry felt a slowdown in leasing activity and subsequently, a decrease in the number of interior office space construction projects. From 2008 to 2009, the number of permits issued in the city of Chicago for office space interior build-outs decreased 35%.

As the economy began to recover, the number of permits issued from 2009 to 2015 jumped 50%. As of 2015, the number of construction permits issued returned to pre-recession levels, yet the increase in the construction workforce has lagged the permit trend. Construction labor in Chicago is only at 74% of its pre-recession levels as of 2015.

Cushman & Wakefield believes the shortage in the construction workforce is a major contributor to the recent trend of increased office space construction costs. Since 2009, the total permit value has increased 65%, while the city’s construction workforce has decreased by 13%. Until demand for construction work decreases, or there is a substantial increase in the construction workforce, construction costs will remain high as compared to previous years.

What does this mean for a Tenant
Start Your Project Early
Because of the scarcity of field labor, the local labor pool will be supplemented with less experienced trades and out of town labor that will be less productive in delivering the project. Construction projects that previously had a duration of 75 – 90 days may now take 90 – 130 days to complete.

Budget Accordingly
As construction costs are rising and the typical standard build out costs are 10% – 15% higher than the previous 12 – 18 months, an experienced project management team will provide essential detailed budget expertise and value engineering options to ensure target financial goals are met.

Evaluate Your Workplace
With the right real estate team, a substantial reduction in rentable square footage can be achieved by implementing new workplace strategies that will reduce overall real estate costs.

Explore Existing Conditions
Alternative choices, such as spec suites (landlord pre-built office space) or an existing space with reusable construction and furniture may reduce project costs and minimize potential schedule risk.

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Chicago Office Space Construction Permit Analysis

Since January 1, 2008 until April 30, 2015 the City of Chicago issued 4,723 renovation / alteration building permits for downtown Class A & B office buildings. These permits total $2.56 billion dollars spent on hard construction costs in these office buildings. The data was vetted to only include tenant construction for office space in downtown office buildings. The data does not include base building work completed by the owner or any retail spaces.

The chart below outlines the number of office space construction permits (known as “Tenant Improvements”) issued per calendar year. In general, the downturn in the number of permits coincided with the Great Recession. The Dow Jones was at 13,044 on Jan 2, 2008 and dropped to 9,035 one year later (Jan 2, 2009). Approximately 3 months later, the Dow Jones dropped to 6,507 (March 9, 2009). Since the bottom in March 2009, the Dow Jones has gradually increased to over 18,000 as of 1Q 2015. The number of Tenant Improvement permits issued for Class A & B office buildings did not recover to pre-recession levels until 2014.

Based on the permit data occurring during the Great Recession, this allows us to see how specific subsections of the office market reacted to the downturn. The charts below are indexed to 2008 permit numbers. The first chart shows permits issued in Class A & B buildings by submarket. As is shown, the West Loop seems to have weathered the Great Recession better than the other two loop submarkets in terms of permits issued as compared to their previous peak.

The second charts shows permits issued in the Central Loop, East Loop and West Loop broken down by building class (A or B). Class A buildings did not drop as far as Class B buildings, but Class B buildings have increased the numbers of permits every year since 2009.


The second part of the permit data is that every permit provides an estimated construction cost number. The charts below outline every tenant improvement permit issued in all submarkets in class A & B buildings broken down by calendar year and estimated construction cost.

This first chart (“Number of Projects”) is a count of the number of permits issued by project value by year.
This second chart (“Value of Projects”) is the total construction spend by project value by year.

This summary chart outlines the findings of the two previous charts. For example, projects that are valued over $10 million only comprise 0.7% of the total number of permits issued between Jan 1. 2008 – April 30, 2015, but they account for 22.1% of the total construction spend.
The chart below shows the average estimated construction cost per permit from 2008-2014 broken down by different subsections of the office market.

I believe this permit data is a good indicator of leasing activity in the downtown office market due to the fact that construction projects are usually tied to a lease event (new lease, renewal, relocation, etc.) Almost any construction project requires a permit in Chicago but for minor cosmetic changes to a tenant’s space. This data also provides a different metric for the market rather than the traditional metrics of vacancy rate and asking rental rates. I also believe this analysis is the first time a tenant can understand how the amount of their construction spend benchmarks against all construction projects occurring in office buildings.

Dining Dynamics: an analysis of Chicago office buildings and their proximity to local eateries

A common discussion around noon in many offices revolves around where to eat lunch. After multiple years of working in the same office building, lunch starts to feel like Groundhog’s Day as people tend to go to dining options near their place of work. This article is an analysis to determine the number of dining options available within a given distance to any Chicago downtown office building.

There are 1,697 unique dining options within the downtown Chicago commercial office market based on city of Chicago food inspection data gathered from July 1, 2013 through June 30, 2014. These dining options range from white table cloth restaurants to coffee shops and they service the occupants of the 331 office buildings that comprise the Chicago downtown office market. My goals are as follows: 1) to quantify the number of dining options, regardless of the type and quality, within an approximate 1 block radius (175 yards) of all 331 Chicago office buildings. 2) to create a metric that compares the number of dining options for a specific building to the market average.

There is a map near the end of this article which displays the final conclusions in an interactive format, but first is a detailed explanation of the process and the results.

The map below illustrates the 1 block radius (blue circle) around the 200 South Wacker Drive office building.

As shown in the chart the analysis produced an average of 21.50 dining options within a 1 block radius of a given office building.

 1 Block Radius
Average Number of Dining Options21.50
Standard Deviation12.99

The chart below outlines the average dining options for the 1 block radius per office submarket (Click here to open a submarket map). The chart is sortable.

SubmarketAverage Number of Dining Options
(1 Block Radius)
Central Loop29.10
East Loop26.70
North Michigan Avenue23.13
River North20.68
River West4.49
West Loop18.61

Based on this analysis, the average Central Loop submarket office building provides for the largest number of dining options in the 1 block radius. A major reason is due to the fact that 92% of the Central Loop office buildings allow for their occupants to reach dining options in all 4 directions without walking through a dining free zone (i.e. Chicago River, Lake Michigan, Highway or Millennium Park). The other submarkets are as follows: River West = 89%, River North = 80%, North Michigan Avenue = 67%, East Loop = 43% and West Loop = 39%.

In order to better understand the context of the building specific data, I compared the total number of dining options for a specific building to the overall average number of dining options for the 1 block radius. I’ll use Willis Tower (233 South Wacker) as an example. The average building has 21.50 dining options within a 1 block radius and Willis Tower has 31 dining options. 31 divided by 21.50 produces 1.44. This means that within a 1 block radius of Willis Tower, there are 1.44 times the number of dining options as compared to the average office building.

The map below is an interactive view of the analysis. Each marker in the map represents a specific office building. You can click on a specific building marker on the map to find the detailed dining option statistics for that building. You can also type an address into the search tool. The buttons at the bottom of the map may be used to change the data set displayed on the map or to only view a specific subset of the data. The link below will open the map in a new window in full screen format.

Click here to view the Chicago Office Buildings – Dining Options Map in a full screen

* The dining option location data used to compile this analysis is based on the latitude and longitude assigned in the food inspection database. It is not based on its actual location within a building. 

The animated map below shows the progression from the office buildings with the most dining options to the office buildings with the least amount of dining locations within a 1 block radius (175 yards).
animated GIF smaller

Volatility of Year Over Year Rental Rate Change

When a tenant decides to renew, renegotiate or relocate their office space they have to deal with multiple financial risk factors. Typically, a tenant signs a long term lease in which the economic terms are based on the current market conditions. The economic terms of the lease will impact their bottom line for years to come. I examined average Class A office building gross asking rents on a per rentable square foot (“RSF”) basis across 8 major US office markets. I used year end data from 2001 to 2014 (14 years). My goal was twofold 1) to understand rental rate spreads in a given market in context of its 2001 – 2014 history and 2) to quantify the potential variance in rental rate changes on a year over year time period.

In the chart below, each line represents a central business district Class A office market.
– Each blue dot on that line represents the actual average Class A asking gross rent per RSF in a given year (2001 – 2014).
– The orange triangle represents the average over the 14 year period.
– The red square represents the most recent year of data (2014).

This chart will help a tenant understand where current Class A market rents align with the market’s historical rent spread. As shown below, the historical spreads in rents in Chicago and Dallas are narrow as compared to the other markets.


In order to understand the potential risk of a large spike or large decline in gross rent on a year over year basis, I calculated the year over year dollar change in rents. This analysis shows that cities like Chicago and Dallas historically do not produce large spikes or declines in rents on a year over year basis as compared to markets like Boston, New York (Midtown) and San Francisco. It’s good to remember that these numbers are based on averages across entire markets thus smaller subsets may see different types of rental swings (i.e. high rise space, a specific submarket within a city, great view space or large blocks of contiguous space).

Year over Year change in Class A Gross Rental Rates on a per square foot basis by Market


As a tenant, it’s important to understand the current market conditions as they relate to the markets historical context as well as the potential risk of rent spikes. For tenants in Chicago, historically the risk of a large year over year spike in rents has not been a major concern. As they say in investing, “past performance does not predict future results” but knowing the historical swings in rental rates may help influence a long term lease decision.