Story at a glance
- Since the pandemic, many cities are seeing commercial real estate worth billions of dollars sitting empty.
- In Chicago, the birthplace of the skyscraper, the total downtown office vacancy rate has jumped to 25.1%, a new record high.
- A $1.5 billion public subsidy program to revitalize downtown Chicago involves remodeling mostly older buildings into affordable housing or hotels.
CHICAGO (NewsNation) — In major cities across America, real estate worth billions of dollars is sitting empty.
Skyscrapers and new developments have struggled to lease space and pay higher interest rates.
Vacancy rates on the rise
In Chicago, the birthplace of the skyscraper, the total downtown office vacancy rate has jumped to 25.1%, a new record high, according to data from real estate firm CBRE. The rate has climbed steadily since the end of 2018, when it stood at 13.4%.
“We just don’t have the same number of people working in the Loop as before,” said Dan McMillen, a real estate professor at the University of Illinois Chicago.
Now, the city says it is investing in its real estate.
Just like a mortgage, interest rates on billion-dollar loans used to build skyscrapers are rising. Those high costs and the price of maintaining a skyscraper are causing the downtown neighborhood to plummet.
The market for these buildings has gotten so bad that some of the buildings are now selling for less than a quarter of what they were valued at a few years ago, according to the Wall Street Journal.
One developer even said that if all the empty space in Chicago was added up, it would equal about 16 Willis Towers worth of empty space.
Signage on a building in the downtown area of Chicago, Illinois, US, on Sunday, May 26, 2024. The Bureau of Economic Analysis is scheduled to release personal consumption figures on May 31. Photographer: Jamie Kelter Davis/Bloomberg via Getty Images 
Retail space for lease in the downtown area of Chicago, Illinois, US, on Sunday, May 26, 2024. The Bureau of Economic Analysis is scheduled to release personal consumption figures on May 31. Photographer: Jamie Kelter Davis/Bloomberg via Getty Images 
Retail spaces for lease in the downtown area of Chicago, Illinois, US, on Sunday, May 26, 2024. The Bureau of Economic Analysis is scheduled to release personal consumption figures on May 31. Photographer: Jamie Kelter Davis/Bloomberg via Getty Images 
A bicyclist passes a vacant storefront along Chicago’s Michigan Avenue on Nov. 15, 2022. Real estate firm CBRE reported the vacancy rate among downtown office buildings ended last year at an all-time high. (Erin Hooley/Chicago Tribune/Tribune News Service via Getty Images)
Investing in real estate
As a solution, Chicago Mayor Brandon Johnson backed a plan to repurpose four vacant office buildings in the city’s financial district to include 1,000 units of housing — 300 of which would be affordable housing units. Veteran developers Quintin Primo III and Michael Reschke are behind the $202 million project.
The plan was previously proposed by former Mayor Lori Lightfoot.
“On a normal day, before (the COVID-19 pandemic), we had 700,000 to 800,000 people come and work and thrive downtown in the Loop,” Reschke said. “Now, it’s probably half that level on Tuesday through Thursday. On Monday and Friday, maybe a quarter of that level. That vibrancy is missing.”
It’s just the first step in a $1.5 billion public subsidy program to revitalize downtown Chicago. The plan involves remodeling mostly older buildings into affordable housing or hotels. This is key because newer buildings that offer a mix of office space and housing are mostly doing alright.
Plus, older buildings, which Chicago has a lot of, are easier to convert into apartments.
“All real estate investments are risky because you’re building for a cycle of 5 years from now. However, there are ways to address that risk and mitigate that risk and certainly part of it is receiving subsidies funds from the government-related entities that help us share that risk,” Primo said.
Not a long-term solution: Expert
However, not everyone views the plan as a long-term solution, believing City Hall’s focus should be on growing the business base versus replacing empty offices with housing.
“I don’t see it as a magic bullet,” said McMillen.
Plus, the cost is going to be huge with taxpayer money on the line.
Chicago isn’t the only city experiencing high vacancy rates.
San Francisco is in the same boat and is taking a similar approach by relaxing construction rules and offering tax cuts. Minneapolis, Houston, Dallas and Tulsa are also among the cities with higher vacancy rates.
NewsNation affiliate WGN contributed to this report.