Column By Elise A. Couston, SIOR, Senior Managing Director at Newmark Grubb Knight Frank
At the end of the third quarter 2015, it was stated that industrial vacancy rates had dipped below 8% for the first time since 2006. This indicates a strong recovery after the market peak reached 12% at the beginning of 2012.
This is quite a strong comeback over a relatively short time-frame, fueled by the confluence of the following: more demand than supply for space due to business growth in many sectors; corporate mergers, acquisitions and consolidations; increased manufacturing; and, a renewed interest in longer-term real estate commitments as lease and purchase prices are rising.
The recent O’Hare airport expansion and the western access (I-390) expansion will continue to drive rents up due to a lack of available land for new construction and a strong demand for this location.
Another important trend is the dramatic increase in E-commerce which is changing distribution patterns in the supply chain to be within close proximity of large population centers.
I asked several real estate experts to name a “2015 highlight” and their “Forecast for 2016.” Here’s what they had to say:
Mike Brennan – Chairman, Brennan Investment Group
2015 Highlight– Acquisition of over $300,000,000 in 2015, and maintaining a 98% leased portfolio on 24 million SF.
2016 Forecast– The Chicago market, being large and diversified, will continue to post rent growth. O’Hare will be the premier market for investment and rent growth.
Tom George – Senior V.P. & Regional Director, IDI Gazeley
2015 Highlight– The level of industrial activity has not felt this robust since the mid-nineties. This is quite something given the number of developers in Chicagoland now vs then. We are pleasantly surprised how well our newest facility and park (Antioch Corporate Center) has fared given its proximity to Wisconsin. Just three months after completion, the 455,000 SF state-of-the-art facility is 70% leased.
2016 Forecast– Based on the level of demand now, the near term forecast looks pretty good. By the end of 2016, there will be a fair amount of product coming on-line. Except for infill markets where competition is scarce, the best facilities in prime locations will do well while others may suffer. The Tenant/Landlord pendulum may remain slightly in favor of the landlord, but new construction will keep it from straying too far from the mean.
Nate Rexroth – Executive VP of Operations, CenterPoint Properties
2015 Highlight– The industrial market showed great strength in 2015. Interest rates have remained flat, leasing is strong and vacancy rates are at an all-time low. As a landlord’s market, landlords were able to raise rent, approaching and sometimes surpassing highs in the market from before the recession in 2008-2009.
2016 Forecast- Since the industrial market is heading strong into 2016 with low vacancy, I think we will continue to see strength in leasing and more development of speculative buildings. CenterPoint is developing several new facilities at CenterPoint Intermodal Center in Joliet and Elwood, Illinois, as well as in Southwest Wisconsin, including a spec facility that has already been leased.
Neal Driscoll – Vice President & City Manager, Liberty Property Trust
2015 Highlight– LPT’s redevelopment of 333 Howard from an outdated manufacturing facility to a class A spec industrial building was the highlight. We acquired the site in 2014 and took almost all of 2015 to deliver the 235,000 SF facility. There were a number of weather-related snags finishing the building, however the timing worked well as most of our leasing activity had late year commencements. We executed the long-term lease and delivered the full building to C.H. Robinson. The building was designed for the current needs of 3PL’s doing airport related business with abundant car and trailer parking, which is hard to identify near O’Hare.
2016 Forecast- I think 2016, barring any macro-economic crisis, will look a lot like 2015. The winter season will help moderate speculative construction activity. We should see vacancy rates continue to drop in the first two quarters while new inventory deliveries are delayed into spring. Across the markets, we’re in very good shape. There are a few submarkets where supply/demand seems a little out of balance. Not enough to cause concern, but enough to potentially put downward pressure on rents. As land and construction prices continue to escalate, we’ll need rents to continue increasing if this cycle is to continue.
Don Schoenheider – Senior Vice President, Hillwood Investment Properties/A Perot Company
2015 Highlight- The Hillwood business highlight was opening our Midwest office in Chicago. We are covering seven Midwestern markets, and already purchased over 1MM SF. We also have over 1.3 MM SF of new speculative construction underway here.
2016 Forecast- We anticipate the Chicago market will continue to be strong, led by solid demand and cap rates that will continue to remain at or below historic lows. We also expect a higher level of spec development, but not so much that it will get ahead of the market.
Jerry Krusinski – President and COO, Krusinski Construction Company
2015 Highlight– Krusinski Construction has increased revenue, added new markets and services, and expanded our team. We’ve recently completed a project in Iowa and started projects in New York, Central Illinois and Indiana. We also added two business development professionals to target markets like healthcare, interiors, and retail.
2016 Forecast- We will see positive growth and activity which we expect to continue for the next 12-18 months. A good indicator for steady growth is the lead time on materials such as precast. Other good indicators are busy architecture and engineering firms, surveyors, testing agencies and those providing pre-construction services with positive workloads for 2016. Developers will continue to look at industrial speculative opportunities in the Chicagoland markets.
The positive forecast for continued real estate demand bodes well going into 2016 for all aspects of the real estate business.
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