Onni, Fulton Street Scrap Office Projects for $600M Multifamily in Fulton Market

Key Takeaway

• Fulton Street Companies and Onni Group pivot from office to multifamily projects in Chicago's Fulton Market, reflecting struggles in the office sector.
• Fulton Street plans a $600 million, two-tower complex with over 1,000 units at 1200 West Fulton Street; completion by 2027.
• Onni Group shifts to a 698-unit residential tower at 357 North Green Street due to lack of leasing commitments and bullish outlook on multifamily demand.

Developers Pivot to Multifamily in Fulton Market

In a significant shift reflecting broader market trends, developers in Chicago's Fulton Market are abandoning office projects in favor of large-scale multifamily developments. Chicago-based Fulton Street Companies and Canada-based Onni Group have both revised their plans, opting to build residential towers instead of the previously planned office spaces. This pivot underscores the challenges facing Chicago's office sector, which is grappling with high vacancy rates and the ongoing impact of remote work and rising interest rates.

Details of the New Developments

Fulton Street Companies has proposed a two-tower complex at 1200 West Fulton Street, featuring over 1,000 residential units. The project, estimated to cost $600 million, will include 43-story and 27-story towers, with 20 percent of the units designated as affordable housing. Additionally, the development will offer 124,000 square feet of commercial space, potentially housing retail outlets, a gym, or other amenities. Meanwhile, Onni Group plans to construct a 698-unit residential tower at 357 North Green Street, shifting away from its original plan for a 29-story office building. This decision was influenced by the lack of major leasing commitments and the firm's bullish outlook on Chicago's multifamily market.

Chicago's Office Market Struggles

The decision by these developers to pivot away from office projects highlights the ongoing struggles within Chicago's office market. The sector is experiencing record-high vacancies and mounting distress, exacerbated by persistent remote-work trends and rising interest rates. Other developers, such as Centrum Realty & Development, are also reconsidering their office plans, with Centrum seeking to rezone a River North site for residential use instead. This trend reflects a broader caution among developers regarding the viability of new office projects in the current economic climate.

Multifamily Market Thrives Amid Challenges

In contrast to the office sector, Chicago's multifamily market has shown remarkable resilience and growth. Since the pandemic, demand for residential units has surged, with Chicago leading the nation in rent growth last summer at 3.6 percent year-over-year. Although rent growth slowed to 2 percent in the fourth quarter due to high interest rates, it is expected to rise between 3 and 4 percent for the remainder of 2024 as economic conditions improve. Onni Group's ambitious plans for Halsted Landing, a $1 billion project featuring nearly 2,500 apartments, retail space, green areas, and an amphitheater, further illustrate the strong demand for multifamily developments in the city.

Broader Implications for Real Estate

The shift from office to multifamily developments in Fulton Market is emblematic of broader trends in the real estate market. Developers are increasingly focusing on asset classes that promise higher returns and stability amid economic uncertainties. The success of multifamily projects in Chicago, driven by strong demand and favorable market conditions, contrasts sharply with the challenges facing the office sector. This trend is likely to continue as developers seek to capitalize on the growing need for residential units in urban centers.

Street Views

• Ron DeVries, Integra Realty Resources (Bullish on Chicago multifamily market):

  "Rent growth slowed to 2 percent year-over-year in the fourth quarter, in part because of high interest rates, but they’re expected to rise between 3 and 4 percent for the remainder of 2024 as economic conditions improve."