"It will still be a tenants' market," Rogers said of the city's 132 million square feet of downtown office space.
Tenants may take a bit more space, rents may rise slightly for new space with good views, but he said current trends will prevail.
This year, about 4 million more square feet of space was taken off the market than was put back on it, Jones Lang LaSalle reported. This phenomenon is called positive net absorption.
Usually that means strong leasing activity, but for contemporary Chicago that's hardly the whole story.
"Some of this is false absorption," said Rogers.
In part it reflects at least 1 million square feet that has been taken off the market as buildings are sold or converted into commercial or residential condominiums, he said.
Meanwhile, Chicago-based brokerage Grubb & Ellis Co. estimates that in 2006 only 573,743 square feet was absorbed downtown, leaving it with a vacancy rate of 16.4 percent, said research analyst Simone Schuppan.
Weak job creation
Despite the central location and solid transportation infrastructure that makes Chicago the type of global hub and gateway city that investors seek, its office market continues to struggle in the face of weak job creation.
By November Illinois had gained 74,600 jobs this year for its 16.8 million residents, and 2007 is expected to return slightly better results. That performance pales when compared to 1998, when strong economic growth generated 126,500 net new jobs, according to the Illinois Department of Employment Security.
The performance of the downtown rental market here, "is more about jobs than anything," said Albert H. Scherb Jr., president of Ameritus LLC, a Chicago commercial developer.
"No matter how you parse it, Chicago is still the capital of the Rust Belt, and when we lose jobs to foreign countries it hurts and makes a recovery slower," Scherb said.
Weak growth, high vacancies and soft rents foiled Goddard Investments' property search here.
"I'm amazed at the prices being paid compared to the real estate fundamentals," said Cairman and Chief Executive Robert Goddard, who bypassed Chicago to purchase a 275,000-square-foot office building in Dallas this year.
Chicago's record-breaking property sales in 2006, he said, "were driven by the capital available, not the office market performance."
This year Chicago commercial property transactions amounted to $5.1 billion, or $228 per square foot, compared with 2004 when sales were valued at about $2.4 billion, or $182 per square foot, said Stephen J. Livaditis, senior managing director at the Chicago office of Eastdil Secured LLC.
He expects 2007 to be another year of strong sales activity and rising prices. "With transactions in New York City now being priced over $1,000 per square foot we anticipate that Chicago's average price per square foot will continue to increase significantly," he said.
The eagerness to acquire real estate reflects national and global trends as well as local dynamics, said Dan Fasulo, research director at Real Capital Analytics, a New York firm that tracks property sales.
"In 2006 a wave of capital has focused on global U.S. cities, and Chicago is certainly one of them," he said.
On a cautionary note, however, fierce competition for buildings may cause investors to leap before they fully scrutinize property financial results, some observers warn.
Furthermore, landlords may welcome high sales prices when they sell buildings, but the high prices, coupled with rapidly rising construction costs, pose some risks for owners managing properties, said Tiffany Winne, a managing director in the Chicago office of New York-based brokerage Studley Inc.
They may want to raise rents. However, if tenants balk, she said, "Investors may find better uses for their money going forward."
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