Associated Bank Thought Leadership Podcast

WGN: We’re on with Dan Barrins, senior vice president in the commercial real estate group at Associated Bank. Dan, welcome back.

Dan Barrins: Nice to be back, Steve.

WGN: I want to focus on a couple of things off the top. The record high in Chicago office vacancies. But some retail vacancy numbers are showing some promise in Chicago's Loop. Talk to us a little bit about what's going on.

DB: Yeah, I think the office peak vacancy is nothing new. We've been talking about this for a little over five years now, almost six. And, you know, it kind of is what it is. I think the office vacancy is starting to slow. I mean, the defections are starting to slow. I think there's some positives in the future, at least in terms of office. I think some of the vacant spaces now being converted to apartments. So that's a very good positive. It's taking some of the empty stock of downtown office off the market.

And you know, one really interesting thing I saw, at least in terms of the office market, is Irvine Company recently listed their One North Wacker office building for sale. So this is really going to be the first building, Steve, that we've seen since the pandemic, that's well-located, well-leased and it's good test the market to sell. All the sales that have happened in the last six years have been distressed buildings, buildings with massive amounts of vacancy. I think One North Wacker is 92% leased. It's near the Loop, it's along Wacker, it's near the train line. So this is going to be the first class-A well-located, highly amenitized building that's going to market to sell. So all the previous sales that have happened in the last six years have all been distressed buildings, high vacancy.

So the interesting thing is we're going to see how this building trades. If this actually is able to command a high price, it'll really give us in the commercial real estate world a good barometer of what office buildings are now worth. So, yeah, we're going to see what with the office market, how healthy it really is with the sale of this One North Wacker. You know, I said earlier, it's going to be a good barometer to see what values are like to really average and see what what the rest of the Loop would be valued at, and what cap rates and prices would look like if other buildings decide to trade that aren't stressed and distressed.

WGN: Dan, the other part of the story is the Loop retail vacancy rate. It was 28.5% in 2025 compared to 29.8% in 2024. This vacancy rate’s getting better. And this has to do with the number of retail vacancies that are no longer vacant.

DB: Right. 28.5% still isn't beautiful, Steve. Not the greatest number to see in the world, but it's an improvement.

You know, I think there's been new leases signed along State Street. There's been new lease assigned recently on Michigan Avenue, which is, you know, a great sign for downtown to start seeing some of these street-level retailers come back. I mean, it's kind of a bleak area. If you drive down a street and you have nothing but vacancies and and empty storefronts, it just doesn't look great. Obviously, if there's vacancy in an office building on the 32nd floor, nobody sees that. But people see what's happening on the ground floor of these buildings downtown.

And if leases are being signed on State Street, leases are being signed on Michigan, they're being signed in the Loop, they're being signed in Oak Street—I think this is a huge positive for the city to show there's more foot traffic, more activity, more people downtown.

And, you know, I think with people returning to the office, I think with what we've talked about previously, some of these office buildings are being converted to apartments. It's going to drive

more foot traffic to drive more retail activity, and it's going to bring more retailers back to the city. It's going to help push this 28.5%, you know, hopefully lower to, you know, 25% in the near future and maybe back into a normalized teens retail vacancy. That hopefully should happen in the short term here.

WGN: Yeah. Some of these new stores include a new Gap Factory store on State Street. There's a new Barnes and Noble on State Street. You mentioned some of the ones on Michigan Avenue as well. Retail businesses, you briefly mentioned this, their success has to do with the number of office workers that are downtown. It's not necessarily tourists that are keeping these places alive, although that's a big part of it. But if people are not back at the offices, this might be a test of whether or not these stores can survive.

DB: Yeah, absolutely. I mean, you're going to need the office workers. I think the daytime traffic has to increase for these retailers to be interested in signing new leases downtown. There just isn't the foot traffic.

I mean, you know, we saw a huge push in retail in the suburbs, a lot of restaurants and stuff opened up in the suburbs because there is a higher daytime population now in the suburbs when people weren't going downtown. I can tell you from my end, when I'm on the train in the mornings. I mean, the trains are full. There's a lot of people coming through the train stations, going to their offices downtown. And you know, that's going to help drive interest in retailers downtown and in restaurants because, like you said, there isn't enough interest or activity from tourists alone. Obviously, there are some tourist business that's down on Michigan and, you know, River North, areas like that that are more touristy population areas.

But to have the daytime population swell, that only comes with downtown office workers, that's what's going to sustain any kind of new retail from taking hold in, staying on a long-term basis.

WGN: Let's zoom out a little bit and talk about the warehouse vacancy in the Chicago area that also ended pretty well in 2025. The industrial vacancy rate was at 4.62%. Talk to us a little bit about why that's important and what this shows about the warehouse sector.

DB: Yeah, I mean, 4.62% have much better, more attractive numbers than the retail at 28% and, frankly, office. But you know, it hasn't all been roses for industrial either. I think the last, you know, 24 and even in the first part of 25 with the spike in rates, developers really couldn't make deals make sense to to to start developments, particularly if they were going to do a deal on spec.

But there's been almost a supply-and-demand balance in industrial recently. You know, there's a huge push post-COVID for industrial users to come in and sign leases, and they were signing leases for new buildings, you know, when a shovel hits the ground. So that kind of real gangbusters leasing, that died down as construction costs increased and then, you know, buildings couldn't pencil with high interest rates.

So with the slowdown in demand from tenants and the slowdown in development from builders who really couldn't make deals feasible, that's really helped keep that supply-and-demand balance in place. While it wasn't the greatest environment to be building in the last year and a half, everything I'm hearing now, even from some of my developers and my clients, that that balance is coming off. I think there's going to be more more demand as leases are being signed now, which they were kind of quiet for the last 18 months. But with new leases being signed, that's a positive sign for the development market, meaning we're going to have more developers coming out building buildings.

They're finding sites and sellers of, you know, if it's a land site or an obsolete building. They've understood the reality of what is happening in the world now. So maybe some of the prices are coming down, so developers are able to make some of these deals make sense financially. So I think we're going to see more development. We see more spec development in 2026, and I think that's a good thing for tenants, because it'll hopefully help reduce some of the rent.

If there's more building activity, you're going to have some available space come open, second-generation space, usually a little cheaper than first-generation class-A space. So I think this is a good indication for everybody.

WGN: Dan, I want to switch gears and look at another report. It sounds like more development is needed in the apartment area. A new report says Chicago area apartment deliveries will fall below 4,000 units in 2026. And this is exacerbating an already troubled housing market in the Chicago area. Talk to us about that.

DB: Yeah, so right now, there's not a lot of multifamily units left, right? I mean, there’s a huge demand for apartments and housing in the city. And similar to what has happened with industrial, you know, the deals haven't just been able to make sense. Developers haven't been able to make financial sense out of building new apartments. So there's been a lag in new development. And with higher elevated interest rates, people aren't buying single family homes or condos, so they're staying in the rental world a little bit longer. So that's pushing up rents because there's fewer units available.

So I think with rates coming down a little bit, people are starting to develop more buildings. I was a little surprised to see, you know, some of the reports that there's going to be very few deliveries in 26. I know a handful of my clients are active and they’re building now.

You know, maybe we're not looking at, you know, the 300- or 400-unit high-rise buildings. But I think really where the city needs the most is, you know, the ten to 20 to 30-unit neighborhood apartment buildings. Those are really the ones that are going to keep people, you know, with a roof over their head. And that's going to be really the barometer of where rents are going to trend over the next 12 to 18 months.

So if the neighborhood builders continue to build, that will keep rents in check. Obviously, you're going to have the big bomber apartment buildings that go up in River North and the South Loop and the West Loop. Those are going to really be the needle-movers. But I think, you know, neighborhood development is hugely important, at least in the city of Chicago particularly.

And one other thing I mentioned, too—a handful of developers that are very bullish on suburban apartment projects. You know, there's been a lot of trades in the last couple of months that have shown there's a huge interest in suburban apartments, and I think that trend is going to continue, and there should be a healthy amount of new supply for for suburban apartments this year as well.

WGN: You know, and that sort of transitions us into our final area of discussion this morning. And that is the next chapter in construction in the Chicago area. You know there have been a couple of different reports and analysts have been making their predictions about how things are going to go. We've just talked about housing demand, but there's also movement around improving infrastructure around some of these developments. And also some of what we've talked about in the past is the shift to reuse, which is some, you know, office buildings being turned into apartment buildings.

Talk to us a little bit about the landscape as we move into the future here. Which one of those things you think is going to be the most important?

DB: Frankly, I think the adaptive reuse is the most important. What that does is, you know, it helps on a couple of fronts, right? It takes away some of the empty stock of old office, obsolete office buildings that would remain vacant anyways.

And really, let's be honest, Steve, if a building on LaSalle Street is empty, what are you going to do with it? You're not going to knock it down. You can't demolish it. It's got to be, you know, repurposed and, you know, have a second life. And I think apartments is a great way to do that. You know, particularly buildings that are a little older have smaller floor plates that can accommodate apartments a little bit better than a modern skyscraper with larger floor plates. So the adaptive reuse is helpful for taking old, obsolete buildings and giving them a new life.

And second, it really is a way for a developer to make a deal, make financial sense, right? Because usually if they're buying an old empty office building, they're buying it for well below replacement cost, so, you know, you couldn't develop a building for the cost that some of these developers are buying these old office buildings. So if you're able to now start development at a lower basis, and you can put in nicer finishes, or you can put in more units to add the density without a huge crippling cost for either land or or building a new building. So that is a huge advantage. And, you know, I'm aware of a handful that are going on now, and it's really going to be interesting to see what the apartment market looks like for some of these new downtown apartment buildings that are adaptive reuses.

I think it's a great utilization of space and I'm interested in seeing, hopefully there's a lot of tenants with a lot of demand that want to move downtown, and all that's going to do is help the downtown office market, the downtown retail market, all the things we've talked about, it's going to revitalize the loop in the downtown area to keep Chicago the world-class city it is.

WGN: And one of the challenges moving forward might be labor. There is a report from Associated Builders and Contractors, who did an analysis that said that experienced tradespeople are retiring faster than new workers enter the field, and that might impact future construction projects.

DB: Yeah, I mean, a huge part of the construction cost is labor. You know, if the labor isn't available and you have to pay labor prices, that can really force a deal, from a financial sense, to no longer making the development worthwhile.

A lot of times you'll see areas similar to industrial or developments—if they can't find skilled labor, you know, a tenant won't go into a building in a particular location. It might be the greatest building in the world, the greatest location. But if you can't find labor in that area and it is not going to work.

So there needs to be more, I guess, emphasis on trades, particularly in the younger generation. My father was in the trades when he was younger. My brothers are in the trades too, so it's just a different, you know, aspect of of of work. And there's, you know, frankly, a great living to be made and, you know, hopefully more younger people get into it because, you know, labor is going to be a huge issue for the industrial market moving forward.

And, you know, not all of us are going to survive on AI alone. So there needs to be some skilled labor to occupy and, you know, build some of these buildings in the future.

WGN: All right, Dan. Good talk. How can better people get a hold of you and have a one-on-one if they want?

DB: Yes, actually, they can always email me at Daniel.Barrins@AssociatedBank.com or my phone, 312-544-4657.