The Chicago Economy in Pandemic and Recovery

By John F. McDonald, Gerald W. Fogelson Distinguished Professor of Real Estate Emeritus, Roosevelt University

This report provides an overview of the economy of metropolitan Chicago during the pandemic that began in March 2020 and the recovery period that followed.  The report uses data that are publicly available and are as current as possible.  The report includes sections on employment and commercial real estate.  The idea is to attach numbers to what the pandemic has wrought.

Prior to the pandemic the Chicago economy had been improving steadily.  The population of the six-county Chicago-Naperville-Arlington Heights Metropolitan Division had increased by only 1.70% from 7.79 million in 2010 to 7.92 million in 2020.¹ However, the City of Chicago, a national leader in downtown development, had population growth from 2.696 million to 2.746 million (1.85%) over that decade.² Metropolitan area employment recovered from the financial crisis by 9.9% from February 2010 to February 2020 as the unemployment rate fell continuously from 11.5% to 3.9%.  The downtown office vacancy rate stood at a low 9.1% in the first quarter of 2020.

Employment:  Pandemic and Recovery

The impact of the pandemic on the Chicago metropolitan area is well illustrated by the monthly employment data for the Chicago-Naperville-Arlington Heights Metropolitan Division.  In January 2020 the employment rate in the metro area was 3.7% and total employment was 3.67 million.  The effect of the pandemic began in March when the unemployment rate increased to 5.0%, and then the economy fell off a cliff in April with unemployment at 19.2%.  Employment had dropped to 3.06 million.  One year later in April 2021 the unemployment rate had dropped to 7.2% and employment had rebounded to 3.45 million.  As of April 2022 employment had recovered to 3.67 million and the unemployment rate stood at 4.6%.  The increase in the labor force over that year from 3.71 million to 3.86 million accounts for the fact that the same level of employment was associated with a higher unemployment rate in April 2022.  Employment has continued to increase only modestly, to 3.71 million in April 2023 and the unemployment is down to 4.2%.  Employment continued to increase slightly in May 2023 while the labor force participation rate declined by 0.1%.  The unemployment rate fell to 3.9%, the lowest rate since February 2020.  See Table 1 for the monthly data from January 2020 to May 2023.

Note that the jump in unemployment in 2020 was accompanied by a decline in the labor-force participation rate from 64.8% in January to 62.0% in June.  If the people who dropped out of the labor force are added to the number of unemployed this revised “unemployment” rate was 17.5% rather than the reported 13.1%.  Note also that labor force participation had regained its January 2020 level by October 2021, and since then has increased to 66.8%.  Labor force participation is a well-known pro-cyclical variable.

An important question is whether the downs and ups in employment were distributed evenly around the metropolitan area.  The answer is – not really.  The Illinois Department of Employment Security issues data on the location of private employment for March of each year.  The publication is called Where Workers Work because it enumerates employment by place work.  However, it is important that many workers work remotely these days.  A worker can be listed as working at a particular place of work, but the actual place of work may be at home.  These data from March 2018 to March 2022 are shown in Table 2.

Table 1:  Employment in Metropolitan Chicago¹

Date	Unemployment Rate (Pct)	Employment	Labor Force Participation (Pct)
1/20	3.7	3,669	64.8
2/20	3.9	3,669	64.9
3/20	5.7	3,671	66.2
4/20	19.2	3,056	64.1
5/20	15.0	3,135	62.6
6/20	13.1	3,174	62.0
7/20	12.1	3,220	62.2
8/20	10.6	3,254	61.9
9/20	10.0	3,292	62.2
10/20	9.1	3,316	62.1
11/20	8.7	3,336	62.2
12/20	8.2	3,356	62.3
1/21	7.7	3,337	62.4
2/21	7.5	3,401	62.7
3/21	7.3	3,425	63.1
4/21	7.2	3,449	63.4
5/21	6.9	3,471	63.7
6/21	6.8	3,491	64.0
7/21	6.5	3,508	64.1
8/21	6.1	3,529	64.3
9/21	5.6	3,556	64.5
10/21	5.3	3,588	64.9
11/21	5.0	3,619	65.3
12/21	4.8	3,646	65.7
1/22	4.8	3,668	66.1
2/22	4.7	3,682	66.4
3/22	4.6	3,688	66.5
4/22	4.6	3,688	66.4
5/22	4.5	3,682	66.4
6/22	4.6	3,676	66.3
7/22	4.6	3,668	66.2
8/22	4.7	3,661	66.2
9/22	4.8	3,658	66.2
10/22	4.9	3,659	66.3
11/22	4.9	3,666	66.4
12/22	4.9	3,673	66.6
1/23	4.8	3,681	66.7
2/23	4.6	3,690	66.8
3/23	4.5	3,696	66.8
4/23	4.2	3,707	66.8
5/23	3.9	3,710	66.7

Source:  Illinois Dept. of Employment Security, Seasonally Adjusted.

Table 2:  Private Employment in Metropolitan Chicago by Area (1000s)

	Metro Area	Cook County	Collar County	Chicago City	CBD	Ring
March 2018	3,597	2,275	1,322	1,191	202	411
March 2019	3,598	2,279	1,319	1,204	203	417
March 2020	3,574	2,265	1,309	1,205	210	422
March 2021	3,343	2,089	1,254	1,098	192	374
March 2022	3,497	2,193	1,304	1,179	217	388
Change 3/20-3/21	-6.5%	-7.8%	-4.2%	-8.9%	-8.6%	-11.4%
Change 3/21-3-22	4.6%	5.0%	4.0%	6.6%	13.0%	3.7%

Source:  Where Workers Work, IDES.  Data are for the traditional definition of the metro area; Cook, DuPage, Lake, Kane, McHenry, and Will Counties.

Table 2 shows that private employment in the metro area declined by 6.5% from March 2020 to March 2021.  The data on total employment in Table 1 show a decline of 6.7% over this same period.  But the decline in Cook County was larger at 7.8%, and the City of Chicago experienced a decline of 8.9% during that year.  The largest decline in Table 2 of 11.4% took place in the ring adjacent to the Chicago central business district.

Recovery from March 2021 at the metro level was 4.6% as of March 2022, which left the metro area still below its March 2020 employment level by 77,000 private jobs.  But now look at the data for the collar counties of DuPage, Lake, Will, Kane, and McHenry.  As of March 2022 these counties had almost regained the March 2020 level of private employment.

The story is different for Cook County and the City of Chicago.  Recovery in Cook County of 5.0% left the county short of the March 2020 employment level by 72,000 private sector jobs.  The City of Chicago was still down by 26,000 jobs. The inner ring around the CBD had lost 34,000 jobs and the CBD had gained 7,000 jobs.  These figures mean that the rest of the city outside the CBD and the ring adjacent to the CBD had just about regained its March 2020 employment level of 574,000.

Table 1 shows that total employment in the metro had increased only by 0.2% from March 2022 to March 2023.  The Where Workers Work data from March 2023 are not yet available, but the data for the metro area suggest that the recovery in employment from the pandemic has been over for at least a year.

The conclusion from Where Workers Work is that the ring adjacent to the Chicago CBD is the big job loser in the down and up story created by the pandemic.  More research is needed to discover the details of what took place in this job-rich zone.

What industries were most affected by the pandemic?  Table 3 displays private employment data for all industries with employment with at least 100,000.  From March 2020 to March 2021 total private employment declined by 231,000.  Accommodation and Food Services lost 89,000 jobs, and the rest of the job losses were scattered among the other major industries.  All of these major industries lost jobs, but none of the others lost more than 16,000 workers.

What about the recovery period?  Total private employment came back in March 2022 with an increase of 154,000 jobs.  Accommodation and Food Services gained 58,000 jobs, but that increase left the industry below its March 2020 level by 31,000 jobs.  Transportation and Warehousing actually grew beyond its March 2020 level.  The increase of 21,000 jobs likely reflects the increase in the service of delivering goods to retail customers.  The industry called Administration, Supervision, Waste Management, and Remediation Services also had an increase in employment over its March 2020 level.  Given that more households were having food delivered and prepared at home instead of eating at restaurants, perhaps waste management jobs explain this increase.

Most of the other industries gained employment, but did not recovery to their March 2020 levels.

Table 3:  Private Employment by Industry, Metro Chicago (1000s)

Industry	3/20	3/21	3/22
Construction	134	131	138
Manufacturing	360	346	348
Wholesale Trade	208	196	203
Retail Trade	378	366	369
Transp. & Warehousing	202	200	223
Finance & Insurance	219	217	215
Prof. & Tech. Serv.	337	330	339
Admin., Superv. & Waste Mgmt.	312	299	322
Education	120	112	116
Health Care	531	515	516
Accommodation. & Food Serv.	344	255	313
Total Private	3,574	3,343	3,497

Source:  Where Workers Work, IDES.

 

The pattern of employment loss and recovery in the City of Chicago from March 2020 to March 2022, with a couple of exceptions, resembles that of the metropolitan area.  Total private employment fell from 1,205,000 to 1,098,000 and recovered to 1,170,000.  Accommodation and Food Services in the city fell from 124,000 to 75,000 and then increased to 109,000.  Transportation and Warehousing in the city fell from 70,000 to 64,000 but came back only to 68,000.  Employment in this industry in the collar counties increased from 132,000 in March 2020 to 136,000 in March 2021 and jumped to 155,000 in March 2022.  Health Care declined from 184,200 to 181,200 and then actually declined again to 179,600.  All other major industries declined and then increased, but fell a little short of the March 2020 employment levels in March 2022.

Commercial Real Estate Markets

This section provides a look at the main commercial real estate markets in the Chicago metropolitan area – office space and industrial space.  As the nation has turned to working remotely and depending on e-commerce, these two markets recently have had very different trends.  Office markets are down and commercial markets (wholesale space and manufacturing space) are up.

Downtown Office Market

It is well known that downtown office markets have been negatively impacted by the pandemic.  The office market in the Chicago metropolitan area, with 269 million square feet of space, is the fourth-largest market in the nation.  According to Jones Lang LaSalle, as of first quarter 2023 the largest seven are:

	Million SF	Vacancy Rate
New York	470	16.10%
Washington, DC	356	20.80%
Los Angeles – Orange County	296	21.90%
Chicago	269	23.50%
Dallas	214	25.00%
Houston	192	25.60%
Atlanta	176	21.60%

Note that four of the top seven are in the Sun Belt.  With exception of New York, all of the vacancy rates exceed 20%.  Vacant means there is no tenant paying rent.  The number of workers actually in the offices on any given day is another question.

The real estate firm of Bradford Allen provides Co-Star data for the downtown Chicago office market.  The data cover the CBD and the ring adjacent to the CBD.  A summary of the data is displayed in Table 4.

Table 4:  Downtown Chicago Office Market

Date	Inventory	Vacancy Rate	Asking Rent per square foot
Q1 2019	148.5 msf	11.6%	$41.42
Q1 2020	151.0 msf	9.1%	$42.18
Q1 2021	153.2 msf	13.4%	$40.78
Q1 2022	152.6 msf	14.9%	$43.31
Q1 2023	159.6 msf	19.8%	$42.89

Source:  Bradford Allen

Some facts jump out of the table.  The inventory of office space increased 11.1 million square feet from 2019 to 2023.  And second, the vacancy rate more than doubled from Q1 2020 to Q1 2023.  Third, the asking rent per square foot dropped in Q1 2021, but then increased.  Asking rent is not, of course, what tenants actually pay for office space.

The increase in the inventory during 2022 surely had an impact on the vacancy rate.  The increase in vacant space from Q1 2022 to Q1 2023 was 8.9 million square feet as the inventory increased by 7.0 million square feet.  In other words, on net all of the increase in space added to the vacant space.  However, the market sometimes displays what is called a “flight to quality.”  In other words tenants leave buildings of lower quality (Classes B and C) for higher-quality space (Class A).  Some details are shown in

Table 5.  The flight to quality is not obvious in these data.  The increase in vacant space was 8.9 million square feet, and most of that increase took place in the Class A buildings.  Apparently some of new buildings are still waiting for tenants.  Large office buildings take years to build, so the increase in the inventory likely reflects decisions made during the years prior to the pandemic.  But notion that office markets can be overbuilt is not a new idea.

The increase in office space during 2022 was not confined to one submarket, but rather occurred in all six of the submarkets included in the data, with the Central Loop accounting for the largest increase at 3 million square feet.

Table 5:  Downtown Chicago Office Market in Q1 2022 and 2023.

Building Class	Vacancy Rate Q1 2022	Vacancy Rate Q1 2023	Vacant Space Q1 2022	Vacant Space Q1 2023
A	13.2%	17.5%	13.9 msf	19.2 msf
B	19.2%	25.2%	7.9 msf	10.7 msf
C	17.0%	23.3%	1.0 msf	1.7 msf

Source:  Bradford Allen.

 

Suburban Office Market

At 93 million square feet, the suburban office market is smaller than the downtown market, and vacancy rates are usually higher in the suburbs.  Table 6 shows the data from Bradford Allen.  The table shows the state of the market as of the end of the years from 2019 to 2022.³ Note that the inventory of space changed very little over these years, but that the vacancy rate jumped from 19.5% at end-of-year 2019 to 27.3% at end-of-year 2021.  Since then the vacancy rate has increased slightly to 28.9%.  This overall increase in the vacancy rate of 9.5% is a little lower than the 10.7% increase experienced in the downtown market.  And the asking rent actually increased during 2022 as the vacancy rate was still going up.  Of course, tenants do not pay the asking rent.  What concessions are being offered to sign up new tenants?

Table 6:  Suburban Office Market, Metropolitan Chicago

Date	Inventory	Vacancy Rate	Asking Rent per sq. ft.
EOY 2019	92.9 msf	19.5%	$24.73
EOY 2020	93.4 msf	21.9%	$24.86
EOY 2021	92.2 msf	27.3%	$24.58
EOY 2022	92.7 msf	28.9%	$26.22

Source:  Bradford Allen.

 

Industrial Real Estate Market

With 1.29 billion square feet of space in 2023, the Chicago Metropolitan Area has the largest industrial real estate market in the nation.  That market has been fairly booming as the nation turns to e-commerce.  Vacancy rates have declined and asking rents have increased.

According to Jones Lang LaSalle, as of the first quarter of 2023 the market consisted of 742 million square feet of warehouse space with a vacancy rate of 3.4% and 552 million square feet of manufacturing space with a vacancy rate of 2.1%.  Asking rent for warehouse space averaged $6.51 per square foot, and manufacturing space owners were asking $8.18 per square foot.  The overall vacancy for the two types of space was 2.8%.

In the fourth quarter of 2021 the market consisted of 1.25 billion square feet; 704 msf for warehousing and 545 msf for manufacturing.  The vacancy rates were 3.7% and 3.2%, respectively for an overall vacancy of 3.5%.  Asking rents were $5.79 for warehouse space and $5.25 for manufacturing space.  JLL reported that the overall vacancy rate in the fourth quarter of 2020 was 5.4%.

The data for warehouse space matches with the increase in employment in the Transportation and Warehousing industry.  The data for the first quarter of 2023 suggest that more construction of industrial space can be expected.  Indeed, Newmark reports that 7.4 million square feet of industrial space was added in the first quarter of 2023, and 35 million square feet are under construction.

Retail Real Estate Market

This final section provides a brief look of the market for retail trade space in downtown Chicago and in the suburbs.  Downtown Chicago contains 11.45 million square feet of retail space.  Stone Real Estate reports an overall vacancy rate of 28.3% at the end of the year 2022.  The vacancy rate had been 14.9% at the end of 2019, and the rate jumped to 26.3% by the end of 2020 and increased again to 27.4% in 2021.  In short, at the end of last year the downtown retail market had shown no signs of recovery.

The market for retail space in the suburbs tells a very different story.  The total amount of space in the various suburban markets is 338 million square feet.  Cushman Wakefield reports that, as of September 2022, the overall “availability” rate was only 7.5%.  The availability rate includes vacant space and space available for sublease.  The availability rate varies by submarket from a low to 5.2% to a high 9.8%, but these can be compared to availability rates of 28.5% for the central Loop and 33.0% for North Michigan Avenue.

Conclusion

This report has shown that, as of March 2020, private employment in the metro area consisting of the traditional six-county definition had some distance to go to recover to its pre-pandemic level.  The six counties were down 77,000 jobs in March 2022 compared to March 2020, and Cook County accounted for 72,000 of the lost jobs.  The US Bureau of the Census estimates that the population of Cook County declined from 5.275 million in April 2020 to 5.109 million on July 1, 2022, a decline of 166,000 (3.15%).  The population of the City of Chicago is estimated to have declined from 2.746 million to 2.665 million (2.95%).  Is the decline in population a cause of the decline in employment, or is it the other way around?  The answer is “both.”

The markets for office space in both the City of Chicago and the suburbs have struggled as vacancy rates have increased.  Vacancy rates for downtown retail space are very high as well.  In contrast, the markets for warehouse space and manufacturing space are fairly booming and vacancy rates in suburban retail space are low.  These trends match the notions that the nation has turned away from working at the office and has turned to working at home, using e-commerce, and eating meals at home.

Footnotes

1. Data are for the Chicago-Naperville-Arlington Heights Metropolitan Division, consisting of Cook, DuPage, Will, McHenry, Kendall, and Grundy Counties. This is not the traditional definition of the Chicago metro area, which adds Lake and Kane and deletes Kendall and Grundy Counties.  The Chicago Metropolitan Statistical Area (MSA) consists of these eight counties in Illinois plus DeKalb County in Illinois, Kenosha County in Wisconsin, and the Gary Metropolitan Division (three counties in Indiana).  Population figures (1000s) for these three different groupings of counties are:
   

   	2010	2020	Change
   MSA	9,461	9,619	1.67%
   Traditional Six	8,328	8,445	1.40%
   Chicago-N’ville	7,275	7,399	1.70%

In other words, all three show only slow population growth for the decade prior to the pandemic.  Population in Cook County increased by 1.56% and the City of Chicago topped them all with 1.85% during the decade.

2. See J. McDonald, “The changing relationship between metropolitan area population growth and central city decline in the US manufacturing belt,” Annals of Regional Science, August 2022, for a detailed analysis of this changing relationship from 1950 to 2020 for the major metropolitan areas of the northeastern US.  Since 1950 the data show that, if the metro area population grows slowly (rapidly), the population of the central city will decline (increase).  For example, the population change data for metropolitan Chicago from 1970 to 2020 are as follows.
   

   	Metro Area	City of Chicago	Difference
   1970s	3.39%	-10.65%	-14.04
   1980s	2.49%	-7.35%	-9.85
   1990s	12.79%	4.02%	-8.77
   2000s	3.39%	-6.91%	-10.3
   2010s	1.67%	1.85%	0.18

The most recent census decade is a sharp change from the past decades.  McDonald shows that the population of the central cities of 13 major metro areas increased by an average of 2.5% in the 2010s decade while the metro area populations increased by an average of 4.9%.  Was the revival of central cities underway?

3. The suburban office market data provided by Bradford

Allen cover four areas; North Suburbs, Northwest Suburbs, O’Hare Area, and the East-West Corridor.  These four areas roughly correspond to the Cook County, southern Lake County, and DuPage County.  These areas capture the bulk of office space in the MSA.  The downtown and suburban data total 253 of the 269 million square feet reported by JLL for the metro area.