Industrial real estate fundamentals in the Greater Chicago market – and nationwide – have continued to see notable improvement during the past 18 months. In turn, commercial real estate services professionals involved in this active sector are enjoying the return of traction when it comes to making deals. Cushman & Wakefield‘s Britt Casey, executive director, and his team completed more than 60 industrial leasing and sale transactions totaling approximately 4.8 million square feet and valued at more than $99 million during the same time period. This landed Casey among the commercial real estate services firm’s Top 20 Industrial Advisors nationwide. In the following interview, he weighs in on regional conditions.
Please provide an overview of current industrial fundamentals in the Chicago market By mid year, the vacancy rate in the Chicago industrial market dropped to 7.0 percent, which represents the lowest rate recorded since the third quarter of 2001 (when the vacancy rate measured 5.6 percent) and is just below the current national average of 7.2 percent. Weighted average direct net rental rates have now risen to pre-recession figures and ended the second quarter at $4.53 per square foot, which is 6.1 percent higher than at the same time last year.
Leasing activity, which was particularly robust in 2013, has slowed somewhat year over year. Still, our 16 million square feet in transactions represented the third highest volume in the nation, after California’s Greater Los Angeles and Inland Empire markets, and we are seeing plenty of users with space requirements of all sizes active in our region. Significant 2014 commitments included Ferrara Candy Company (747,000 square feet), Midwest Warehouse & Distribution (650,000 square feet) and DHL Global Forwarding (491,000 square feet).
Looking ahead, continued tenant activity coupled with increased absorption levels should sustain momentum for the Chicago industrial market through the balance of 2014 and beyond.
Are you seeing a shift from a tenant-market to one that favors landlords? The correct answer to this question needs to specifically qualify both the size of the tenant and the submarket. Big-box availabilities, in excess of 250,000 square feet, seem to be outpacing current demand in the marketplace, which creates competitive landlord bidding for the limited amount of qualified tenants in this size range. Quality buildings that come online in the central DuPage county submarket are seeing lots of interest and fast lease-up. For example, our team recently retenanted a 270,000-square-foot building for TA Associates Realty in Carol Stream. Its larger, 185,000-square-foot unit was on the market for less than six months; the smaller unit was available for a bit longer. Both spaces drew healthy interest.
How have the current fundamentals impacted construction levels? Industrial construction levels in the Greater Chicago market, both for build-to-suit and speculative development, are nearing numbers not reached since 2008. During the two quarters, 2.6 million square feet in new development came onto the market, with an additional 11.2 million square feet currently under construction. The recently delivered product includes Trader Joe’s new 700,000-square-foot warehouse in Minooka.
This cautious surge responds to continued strong demand for high-end distribution space in a market with limited available supply. A significant amount of Chicago’s new industrial development is located in and around the O’Hare International airport. We recently closed on the sale of a 16-acre redevelopment site in Des Plaines, about one mile from O’Hare. The buyer, Liberty Property Trust, plans to immediately begin construction of a new 230,000-square-foot modern distribution building. The development is already attracting a great amount of interest, mostly from users in industries synergistic to the airport, especially logistics.
Investment sales in Chicago have surged. Why? Ranking first in the nation, Chicago industrial investment sales measured 13.5 million square feet by mid year, up from 11.2 million square feet sold during the same time in 2013. The I-80 Corridor is leading the pack, highlighted by W.P. Carey’s acquisition of a 1.6 million-square-foot warehouse/distribution facility in University Park and Griffin Capital’s purchase of a 1.4 million-square-foot property in Joliet. Investors, like users, continue to be attracted to the Chicago market’s superior transportation infrastructure. Our market’s position as the third largest intermodal center in the world is unmatched by neighboring states.