Chicago’s commercial real estate (CRE) sector is grappling with a volatile landscape, where national trade policies and local political dynamics are significantly influencing the market.
Concerns have been raised by industry professionals who attribute the slowdown in deal-making and a decline in market confidence to government decisions that have not favored commercial real estate.
The latest Chicago mid-year sentiment analysis, conducted by The Real Estate Center at DePaul University in collaboration with the Urban Land Institute, Chicago District Council, highlights these issues.
Professionals in the sector have expressed that President Donald Trump’s tariffs, alongside the current geopolitical climate, pose substantial risks to the city’s real estate market.
According to the report, the first half of 2025 witnessed a notable deceleration in activity, leading many in the CRE community to describe this period as a ‘big tasty nothingburger.’
Hugh Williams, co-founder of KWILL Merchant Advisors, noted the need for significant improvement in the second half of the year.
Tariffs were mentioned by respondents as having a profound effect on their business strategies. Roughly 85% of professionals indicated that tariffs would have a moderate to very high impact on their operations, with 30% saying the impact would be very high.
Anthony Hrusovsky, principal of Mavrek Development, shared his experience of negotiations being derailed by tariffs, specifically referencing difficulties encountered while discussing a project at 1000 W. Jackson Blvd.
The uncertainty introduced by tariffs has shifted perceptions of risk significantly, affecting negotiations and investor confidence.
Despite this, Molly McShane, CEO of The McShane Cos., indicated that while she has not observed a direct correlation between tariffs and increased costs from subcontractors, the uncertainty surrounding these tariffs is a prevalent topic in discussions within the industry.
The local government has also been heavily criticized, with a staggering 85% of respondents expressing dissatisfaction with City Hall, while just 1% reported satisfaction. Sentiment regarding lawmakers in Washington D.C. is similarly bleak, with only 8% satisfied and 61% dissatisfied.
Williams pointed out that bureaucratic hurdles discourage industrial developers from pursuing projects in the city, particularly when dealing with the complexities imposed by aldermanic prerogative.
Long-term concerns are centered around taxes and the municipal budget, which have overshadowed safety issues that saw a decrease in concern compared to previous years, likely due to improving crime statistics.
Looking ahead, economic forecasts are dim, with 66% of respondents anticipating a recession by the end of 2026. Additionally, 51% believe that inflation levels will rise over the next year.
However, there are some positive signals among the uncertainty.
Notably, 43% of those surveyed believe that the bid-ask spread, the difference between what sellers ask for properties and what buyers are willing to pay, has narrowed over the past year, with expectations for further improvement next year at 58%.
Interestingly, among those anticipating narrowing spreads, a significant 2-to-1 margin expects sellers to adjust their pricing more than buyers, differing from earlier beliefs that ‘dry powder’ capital waiting on the sidelines would automatically tighten the gap as investors seek to deploy funds.
Furthermore, more than 73% of professionals noted an increase in available investment opportunities at their pricing levels, indicating a rising tide of potential projects.
Confidence in equity sources also appears to be growing, with 77% of respondents observing improvements in equity sources offering reasonable return expectations. Even the lending landscape shows signs of recovery, as 71% indicated an uptick in debt pricing conducive to positive leverage.
Reagan Pratt, director at The Real Estate Center at DePaul University, stated that while opportunities may not be widespread, they are on the rise, suggesting a more balanced relationship between debt and equity options.
Preferred sources of equity investment in Chicago are anticipated to come largely from U.S. family offices and private wealth, as well as local institutional investors like pension funds, foundations, and endowments.
Hrusovsky noted that smaller neighborhood deals are progressing more smoothly, often driven by individual high-net-worth investors who can make quick decisions without the constraints of formal governance structures.
As for debt, a local focus is expected over the next two years, with 71% of real estate professionals identifying well-capitalized regional banks as primary sources of debt capital.
Respondents were less optimistic about large national banks and small local banks, with only 31% and 36% respectively citing them as significant sources for debt financing.
Overall, the sentiment among CRE professionals for the remainder of 2025 remains cautious.
While bullish and bearish views are almost equally divided at around 20% each, a significant 61% of respondents described their sentiments as neutral or mixed, indicating uncertainty regarding future market conditions.
James Shilling, chair of the finance and real estate department at DePaul, summarized the findings by emphasizing the mixed signals from the survey, pointing to conflicting views amid broader macro risks within the marketplace.
image source from：bisnow
