Equity Commonwealth has sold its 98.4 percent leased, 1,571,000-square-foot property at 600 West Chicago Ave. in Chicago for $510 million.
The buyer of the eight-story office property is an affiliate of Sterling Bay Co.
Equity Commonwealth purchased the building in 2011 for $390 million.
The deal is expected to close in March 2018.
Annual leasing activity in Chicago measured 7.7 million square feet, an 11.9 percent increase over last year, according to Cushman & Wakefield. All three of the largest 2017 transactions were anchor leases for new/redeveloped buildings, including Bank of America’s anchor lease at 110 North Wacker for 533,000 square feet. The new trophy tower will break ground in the first half of 2018 with expected delivery in 2020. Overall absorption totaled 792,000 square feet in 2017, 63.9 percent less than in 2016, largely due to tenants vacating old spaces and reducing their square feet per employee, a trend consistent across the country. With the decrease in absorption, overall vacancy rose 140 basis points to 13.8 percent. Despite the vacancy rate increase, the CBD overall gross asking average rent increased by 5.3 percent to $38.96 per square foot. While overall asking rents increased, net effective rents leveled off because concession growth outpaced asking rent growth. Flat net effective rents are problematic for owners looking to dispose of their assets if they are not able to reach their underwriting assumptions.
The total amount of investment sales inventory in square feet traded fell 49.2 percent from last year, notes Cushman & Wakefield. In contrast, the average price per square foot grew by 5.8 percent, with class A assets experiencing the highest year-over-year increase, showing strong investor demand for high-class assets. Currently two foreign investment firms are in negotiations to make their first acquisitions in Chicago. A third foreign investment firm, HNA, closed its first acquisition earlier in 2017 with the purchase of 181 West Madison St. for $359 million, or $377 per square foot. This 953,000-square-foot building was the largest asset sold in 2017.
