Chicago’s CBD office vacancy declined by almost half a percentage point during the first quarter, according to a report from CB Richard Ellis. The Windy City’s CBD vacancy rate dropped from 12.9% at the end of 2002 to 12.5% by the end of the first quarter of this year.

The data includes only direct space. If roughly 5 million sq. ft. of sublease space is factored into the equation, Chicago’s vacancy rate rises to nearly 17%.

There are some troubling signs on the horizon for Chicago’s office market. Within the next few months, several large tenants will vacate substantial chunks of space, including Focal Communications, ABN Amro and Mayer, Brown, Rowe & Maw. These vacancies will push LaSalle Corridor vacancy close to 18.3%, according to a Newmark office report.

The Newmark report shows that the West Loop is leading the market in leasing activity. Only 27% of the downtown CBD office space was located there in 2002, but nearly 50% of the entire CBD’s office leasing volume occurred there.

Leasing may be down overall, but the sales market remains strong. So far this year, three major office buildings have traded — the AON Center, Congress Center and 625 North Michigan.

"Although there are concerns about the soft leasing market and declining rental rates, overall the CBD is considered a solid place to be. Owners are solvent. Development has been relatively limited and highly pre-leased," says Tony Smaniotto, a senior vice president with CB Richard Ellis’ Chicago office. Another strength of the Chicago market, says Smaniotto, is its diverse tenant base.

Only one new office building opened up during the first quarter of this year. The 1.2 million sq. ft. Dearborn Center, located at 131 South Dearborn Street, hit the market during with 28% of its space vacant. Meanwhile, rental rates have been dropping this year after falling as much as 20% last year in some submarkets. Net rental rates for trophy Class-A buildings typically range from $22 to $24 per sq. ft., according to CB Richard Ellis. Class-B building rates range from $11 to $16 per sq. ft.