Chicago's Two-Track Market: Industrial Thrives While Office Struggles

Written by:

Steve Marcinuk

Date:

08 Apr 2026

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The Greater Chicago area remains a critical logistics center, with its unrivaled transportation infrastructure driving demand for industrial real estate even as the region’s office sector confronts persistent headwinds.

Gordon Lamphere, Vice President at Van Vlissingen and Co., a commercial real estate company with nearly 150 years in Chicagoland, describes a market splitting into two distinct stories — an industrial sector riding Chicago’s logistics advantages to near-full occupancy, and an office sector grappling with how much space, and what kind, companies actually need in a hybrid-work era.

Industrial Real Estate

Chicago’s longstanding status as a transportation nexus continues to anchor its industrial market. The region offers more rail lines than nearly any other state, and major highways put most U.S. households within a day’s trucking distance. This connectivity makes Chicago a top choice for companies that depend on moving goods quickly and reliably.

“If you’re running food, pharma, or any logistics-based business, there’s really no good reason not to locate in Greater Chicagoland,” Lamphere says.

This strategic advantage has kept industrial vacancy rates low. According to Van Vlissingen’s internal market index, industrial vacancy is about 5.1% across the region, with much of that figure tied to either new developments yet to be leased or aging properties in city centers that no longer meet modern standards. The company completed over 100 industrial transactions last year and expects to reach 150 deals by 2026, indicating sustained demand.

The Office Market

In sharp contrast, Chicago’s office sector continues to struggle. Vacancy rates hover around 26.5%, but Lamphere notes that the pain is not evenly distributed: “Class A space is still incredibly resilient. The problem is everything else.”

Premium office buildings with strong amenities remain desirable, while older, generic properties see declining interest. Van Vlissingen recently closed a 20,000-square-foot deal in the O’Hare submarket, where a tenant upgraded from lower-tier space to a premium building. The company accepted a smaller per-employee footprint in exchange for higher quality, signaling a clear trend: businesses are seeking about 20% less space but insisting on better environments.

Small office condos under 5,000 square feet can still find buyers or tenants, but large, undifferentiated office towers face steep challenges — built for a full-time, in-office workforce that hybrid and remote work has permanently thinned out. The market increasingly rewards properties that deliver both quality and flexibility, leaving outdated buildings with high vacancy and uncertain futures.

Construction Costs

The trend toward quality has a catch. Tenants want Class A space, but building it out often exceeds $100 per square foot — a significant amortization burden over a typical five-year lease, and one that frequently surfaces too late in negotiations. Tenants balk at the total cost of improvements; landlords refuse to absorb it. The deal dies. “A lot of folks doing tenant or landlord representation don’t think through this as they should,” Lamphere says.

This cost dynamic helps explain why the office market’s troubles run deeper than vacancy numbers suggest. It’s not just that companies want less space — it’s that the space they do want is expensive to deliver, creating a gap between what tenants expect and what landlords can economically provide. Industrial properties don’t face the same friction: warehouse and distribution space requires far less customization, which is one reason deals in that sector close faster and more predictably.

Market Outlook

Despite frequent headlines about Chicago’s political and fiscal challenges, Lamphere argues the market’s fundamentals remain sound. “Chicago’s been pretty poorly managed for hundreds of years,” Lamphere says. “But the labor force is strong, and it’s a phenomenal location.”

For industrial investors, the best opportunities cluster around major logistics corridors. Industrial vacancy near O’Hare and Elk Grove can drop as low as 2%, making those submarkets highly competitive for distribution and warehouse operations. South Lake County offers a different proposition — top-ranked schools, nearby research institutions, and relatively low taxes make it a natural fit for R&D and knowledge-based businesses. “If you want to set up an R&D center or start a business requiring top-level talent, you have some of the best schools and an incredibly educated demographic right there,” Lamphere says.

The biggest variable looking ahead is energy prices. Geopolitical instability could push logistics costs higher across the Midwest, squeezing industrial tenants and property owners alike. For a market whose industrial strength rests on the efficient movement of goods, that’s a risk worth watching. “When energy costs go up, the cost of everything goes up,” Lamphere says. “You’re going to see more emphasis on having efficient transportation because the cost of moving things around the country will be much higher.”

About the Expert: Gordon Lamphere is Vice President at Van Vlissingen and Co., a commercial real estate firm with nearly 150 years of experience in the Greater Chicago area. The company specializes in industrial and office transactions across Chicagoland, with a focus on the region’s major logistics corridors and suburban submarkets.

This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.