CRE Midwest

Industrial market continues strong activity with 18 consecutive quarters of positive net absorption

Geoffrey Kasselman

According to Newmark Grubb Knight Frank’s (NGKF) 3Q14 Chicago Industrial Market research, Chicago’s industrial market tallied 2.2 million square feet of positive net absorption in the third quarter of 2014, which extends the string of positive net absorption to 18 consecutive quarters.

According to Newmark Grubb Knight Frank’s (NGKF) 3Q14 Chicago Industrial Market research, Chicago’s industrial market tallied 2.2 million square feet of positive net absorption in the third quarter of 2014, which extends the string of positive net absorption to 18 consecutive quarters.

The research showed that despite 1.3 million square feet of new construction delivered to the market third quarter, healthy demand helped lower vacancy by 10 basis points to 8.4 percent—a level that hasn’t been seen in over seven years.

“The third quarter for industrial real estate was steady as compared to quarters one and two,” said Geoffrey Kasselman, executive managing director, national industrial practice at NGKF. “It reflects a heightened level of deal velocity, but by all accounts, quarter four should be up considerably, and promises to be robust.”

Kasselman noted that the current market updates for industrial are the same ones that were trending at the beginning of the year.

“It’s really just a continuation of a return of capital, a return of investor interest and user activity,” he said. “All of those trends continue, as well as both speculative and build-to-suit building.”

NGKF’s research showed that with nearly 12.8 million square feet of construction underway—of which 44 percent is speculative product—the amount of space under construction surged to a six year high.

Kasselman said that NGKF is also watching rents, and are expecting them to go up as a result of all of the activity. The company’s third quarter research noted that the average asking rental rates held fairly steady over the previous quarter at $4.63/SF, up $0.15/SF over the third quarter of 2013.

“We’ve seen it only in a few spot instances,” Kasselman said. “But we still believe that as we roll into 2015 you will see some price increases, and you’ll continue to see influx of local, regional, national and international, capital in pursuit of quality industrial properties in primary and second-tier markets. It’s really a great time to be in industrial.”

In the third quarter, there were several notable lease transactions. Combined IKEA (850K SF) and Advertising Resources Inc. (456K SF) inked 1.3 million square feet leases, in neighboring Minooka warehouses. Uline leased 520,000 square feet in the Far North submarket in LakeView Corporate Park. FedEx leased 350,000 square feet at 5959 Howard Street, and Follett School Solutions, Inc. leased 486, 868 square feet at 1340 Ridgeview Dr.

As far as new developments in the pipeline go for NGKF, Kasselman said they’re having a steady stream of activity and project success.

“We just sold a 222,250 square foot building in Zion, IL to an investor, and we have a user who’s about to sign a lease on it,” he said. “We’ve had success with a large 300,000 square foot building in Niles, IL. We’re having some spec building and build-to-suit success in Woodridge, in Union Pointe with McShane.”

“We also have a nice project in WoodDale, just west of O’Hare with Bristol Group,” he continued. “And we’ve got a bunch of other things in other places. All of those collectively, to me, are fairly straight forward to a market of our size, and of our diversity and dynamics.”

“We’re very proud of the work, and grateful for the opportunities,” Kasselman added. “All of my broker’s numbers are up this year, so we’re very pleased about that. We love the velocity and the market conditions, and honestly are just grateful to be in this business.”

According to Kasselman, he’s been around for a couple of full cycles—the last downturn was the third one he’s persevered through.

“I was very concerned about this particular downturn because of the severity of it as compared to the other two times,” he said. “Yet the Chicagoland industrial market rebounded more quickly, and robustly, than I ever thought possible.”

“So there’s a particularly strong sense of both relief, and gratification, for that,” Kasselman continued. “Is it the most robust I’ve ever seen it? No, probably not yet. But it sure feels like it’s going to get there. It’ll probably even surpass that if things keep going the way they’re going.”

After persevering through three cycles, Kasselman has some advice for anyone just entering the field in the event of another economic downturn.

“I believe in professional progression,” he said. “A downturn provides an opportunity for professional progression. Never stop adding tools to your tool belt—skill sets that complement the skills you already have. If you take the time for professional progression in the good times, you now have more tools to utilize, and rely upon, to be creative in pursuit of business opportunities in a downturn.”

His second piece of advice is that one person’s distress is another’s opportunity.

“As service’s providers, even in a downturn, if somebody has the need to dispose of, downsize, or recalibrate, chances are there is someone else who is interested in buying low, to sell high later. So there’s still a fair amount of third party services activity even in a downturn.”

Kasselman noted it’s important that brokers and service’s providers understand how to shift gears in their practice during a downturn to be able to still pursue business opportunities, persevere, and possibly even thrive in a downturn.

“During this last downturn, a lot of people would tell me they felt bad for me because I was in commercial real estate,” he said. “I was thinking to myself that 2010 was my best year ever. You have to be able to shift with the market. Having that professional progression, tools, and the mindset of being adaptable can actually carry you through.”

“You might even surprise yourself at how well you do,” Kasselman added. “So I would tell people don’t feel bad for me. Feel bad for this set of people in the industry, but not for me—things for me are great.”