Industrial Midwest

Chicago clinches third spot for strongest industrial market demand in this year's first quarter and now we know why

Driscoll-Cup-Pic-2015
The Driscoll family enjoying some family bonding time in the best way possible--with the Stanley Cup.

Booming, soaring, thriving—those are just a few adjectives to describe today’s record-breaking industrial sector. In fact, Chicago was recently ranked third strongest market in terms of demand for industrial space with absorption at 3.9 million square feet, according to Cushman & Wakefield’s national first quarter 2016 report.

Booming, soaring, thriving—those are just a few adjectives to describe today’s record-breaking industrial sector. In fact, Chicago was recently ranked third strongest market in terms of demand for industrial space with absorption at 3.9 million square feet, according to Cushman & Wakefield’s national first quarter 2016 report. Tomorrow's 13th Annual Industrial Summit experts confirm the data, and even share with us some confessions on their initial 2016 expectations.

Dallas/Ft. Worth took the No. 1 spot in the first quarter with 6.8 million square feet of absorption and Central New Jersey came in second with 5.1 million square feet.

Competition throughout the city and its corridors is no joke. Vacancy in the market continues to decrease, breaking historical records with a current rate of 6.8 percent, Transwestern’s Q1 2016 research shows.

What’s even more promising about the future of the market? The response from all the demand. Construction is going up as activity goes up, but that also signals increases in construction costs and cost of labor, materials, permits, fees and engineering.

Transwestern research shows that 13.8 million square feet of industrial/flex properties are currently under construction in Chicago.

There’s still plenty of interest for existing industrial product in Chicago, too. A growing number of investors are seeing the value in liquid investments of those properties, which means industrial investment is not expected to slow down any time soon.

One things certain—this would be a bad time for industry pros to fall off the radar as the city expects to see a lot more activity. Vacancies are expected to dip into the low 6 percent by year-end, Transwestern research notes, which is a new record for the Chicagoland market.

Neal Driscoll, vice president and city manager of Liberty Property Trust, said the pace of leasing activity continues to remain very high and admits that he wishes there was a way to build faster.

“Questions are arising as to whether or not the market is entering the late stage of the development cycle, to justify continued spec development, but I think there is plenty of growth ahead of us,” he shared. “We are in the mist of one of the most surreal elections in history and yet the economy continues to be pushing forward.”

Driscoll is very optimistic about the future of industrial, expressing that he’s more optimistic about 2017 today than he was just earlier in the year.

Matt Goode, principal at Venture One Real Estate, said that what he’s seeing is that with less vacancy, there’s less quality space and that provides the opportunity for companies to build more buildings. On the ground level, he said, it seems like companies are doing well, they’re expanding and looking for new space so demand for space in industrial is increasing.

As for investment, Goode shared that there’s a lot of enthusiasm. He added that people are looking ahead to the next 36 months and are a little more cautious but overall, fundamentals right now are good.

“We’re as busy as we’ve ever been from a leasing perspective,” Goode noted.

On the sales side, Dominic Sergi, CEO and president at Clear Height Properties, assures that it’s a great time to be a buyer and seller.

“The market itself is in a position where there are great opportunities that still exist from a long and short-term perspective and assets that have been repositioned in the last three to five years sit in a good spot for the next generation of buyers,” he explained.

Sergi agrees that there’s stiff competition out there for good assets. He shared that while he hasn’t noticed any immediate concerns at the moment, it’s inevitable to not be concerned about some things if you’re a buyer or a seller.

“I’ve guessed five different downturns and they’ve been wrong every time,” Sergi admits. “Those things are always prevalent in the back of your mind and you’re always guessing what’s up ahead.”

Adam Moore, market leader for First Industrial Realty Trust, said the caution comes from the developer side.

“In this favorable environment, justifiably, we are seeing an increase in speculative development like our First Park 94 project In the Kenosha market,” he said. “However, overall developments have been exercising much more caution, so demand has continued to outstrip new supply.”

Moore said this is great for the health of the industrial market but it has put some impetus on tenants to move quickly. Spaces often have multiple interested tenants and deals are moving more quickly than we have seen over the last decade.

“The Chicago industrial market is as strong and dynamic today as it has been during my career,” he shared.

Going forward, Moore said we can expect to see rent growth in Class A but with new supply coming to meet demand, which he expects to be healthy, but maybe not at the robust pace they have seen in some markets over the past 18 months.

There will also be more rent growth in Class B as tenants look to where there is some availability to meet their needs, particularly in more infill locations, he explained. Spec will continue to be a driver in the market as we continue to see low availability in Class A and tenants move to position their business to grow.

Find out more about Chicago’s thriving sector at our 13th annual CIP Industrial Summit April 29. Register Here.