Local commercial real estate pros keep banging the drum about how the city and state’s fiscal woes are scaring investors away from the Chicago market. Some new data support that narrative.

Single-property commercial sales in the Chicago area fell to $7.7 billion in the first nine months of the year, down 33 percent from the same period in 2019, according to New York-based research firm Real Capital Analytics. It was the biggest drop among the top 25 U.S. markets, and much larger than the 6 percent decline for the nation overall.

In a recent article, “What’s Wrong in Chicagoland?” RCA searches for answers to that question.

“There are great reasons to be in the Chicago market, but investors are clearly finding the market less attractive,” writes author Jim Costello, RCA senior vice president. “Is it unfunded pension liabilities in Illinois, uncompetitive labor markets, or high taxation driving the change in perceptions? Is it some combination of these and other factors pulling down the whole region?”

Many landlords contend one source of the problem is Cook County Assessor Fritz Kaegi, who has jacked up assessments on commercial properties in the county’s northern suburbs. Seeing that as a precursor to big property tax hikes, some investors have decided not to buy in Cook County while others are just making lowball offers on properties, landlords say.

The numbers give credence to that theory. Single-asset sales fell 42 percent in Cook County in the first nine months of 2019 from the year-earlier period, according to RCA. That’s the second-biggest drop for the six Chicago-area counties tracked by RCA. Only Lake County posted a bigger decrease, 44 percent, but Lake County represents a small share of the Chicago market.

Less demand among investors for commercial real estate would ultimately lead to lower property values. Some recent deals and data suggest it already has. An RCA index of commercial property prices in the Chicago area has fallen slightly over the past two years. Chicago was the only market among 32 tracked by RCA where prices fell. Price indexes for the Los Angeles, San Francisco, Houston and Boston markets all rose more than 10 percent.

In recent presentations in Tokyo, Costello said he fielded questions from real estate investors about the weakness in Chicago.

“It is a topic of concern,” he said. “Chicago is a global city.”

Owners of properties in Chicago have avoided a big tax hike for now. The Chicago City Council today is poised to approve a 2020 budget that will include a $72 million increase in the city’s gross tax levy, less than many people expected.

But the city and state of Illinois are still wrestling with huge unfunded pension liabilities, and real estate investors worry about what the future may hold. Last year, Green Street Advisors, a Newport Beach, Calif.-based research firm, gave the Chicago area the worst “fiscal health” score among top U.S. metropolitan areas. The firm issued a dire warning about the market falling into a “fiscal death spiral” that could lead to ever higher property and income taxes and an exodus of residents and companies.

Many investors still embrace the counternarrative, highlighting the city’s status as the capital of the Midwest, with world-class cultural and educational institutions, a vibrant downtown and growing tech sector. But a growing number have a fear of the unknown.

“There is nothing wrong with Chicagoland, investors simply hate uncertainty,” Costello writes. “Investment activity is pulling back here as investors are struggling to come to grips with future tax liabilities at the state and local level. Potential sellers will minimize the impact of these liabilities, buyers will overestimate them and in combination, buyers and sellers will move further apart in price expectations.”