The most important number in Google's expected 600,000-square-foot lease at Chicago's redeveloped Thompson Center is not the square footage. It is the 354,000 square feet that Google will not occupy.
The tech giant is taking roughly 63% of the 954,000-square-foot building, according to a Colliers report. That leaves a 354,000-square-foot block for the market to absorb. Morningstar is reportedly considering 300,000 square feet of that space, but the deal is not finalized. If it falls through, the building's owners—a joint venture of The Prime Group and Capri Investment Group—will be marketing one of the largest contiguous blocks of Class-A office space in downtown Chicago.
This is not a story about a market recovery. It is a story about how the deepest-pocketed tenants are consolidating into the best buildings, while the rest of the market waits for a bid.
The Thompson Center redevelopment is a bet on the Central Loop, a submarket that has seen 737,000 square feet of negative net absorption year-to-date, according to Colliers. That is the worst performance of any downtown submarket. The West Loop, by contrast, has posted 37,000 square feet of positive absorption. The gap is not small. It is structural.
Google's commitment is a vote of confidence in the Helmut Jahn-designed building and its redevelopment. But it is not a vote of confidence in the broader Central Loop office market. The building is a landmark. It has been gut-renovated. It offers floor plates that can accommodate a single tenant of scale. That is a rare combination. Most Central Loop buildings are older, smaller, and harder to reconfigure. They will not benefit from Google's presence the way a suburban office park benefits from an anchor tenant.
The capital markets implication is straightforward. Lenders underwriting office loans are looking for buildings with tenants like Google. They are not looking for buildings with 50,000-square-foot floor plates and 15-year-old mechanical systems. The bifurcation between Class-A and Class-B/C office is not a trend. It is a permanent feature of the post-pandemic market.
Colliers data shows that Class-B and C buildings are trading at roughly $50 to $60 per square foot. That is a basis that can work for a value-add buyer with cheap capital and a long hold period. But it is not a basis that supports new construction or significant redevelopment. The Thompson Center redevelopment was a multi-hundred-million-dollar project. It required a tenant like Google to pencil. Most buildings do not have that option.
The broader downtown office market saw a 30-basis-point decline in vacancy to 24.3% in the second quarter, the first drop in two years. Class-A assets drove the improvement with 473,000 square feet of positive net absorption. That is a positive data point. But it is not a trend. One quarter of improvement after two years of deterioration is a pause, not a reversal.
Transaction volume has picked up, with more than double the number of buildings listed for sale over the past year. But the bulk of those listings are Class-B and C properties. Only two Class-A buildings are on the market. That tells you where sellers think the demand is and where they think it is not.
Who benefits from this deal? Google gets a flagship office in a redeveloped landmark at a basis that likely reflects the risk the developer took on. The developer gets a tenant that justifies the capital spent. The city gets a marquee name in a struggling submarket. Morningstar, if it signs, gets a large block of space in a building with a built-in amenity base.
Who is exposed? Every other Central Loop landlord. Google's presence will draw some tenants to the area, but it will also set a new standard for what tenants expect. Buildings that cannot match the Thompson Center's quality will lose tenants, not gain them.
The market should watch whether Morningstar finalizes its lease. If it does, the Thompson Center will be effectively full before it opens. If it does not, the building's owners will be competing for the same pool of large-block tenants that every other Class-A landlord is chasing. That pool is not growing.
Google is not saving downtown Chicago. It is choosing the one building that fits its needs. That is a rational decision. It is not a market signal.