According to the Association of Industrial Real Estate Brokers, there are telltale signs that the industrial real estate market is improving throughout the Chicago metro market. AIRE members represent more than 350 industrial real estate brokers who negotiate transactions from Southeast Wisconsin to south of Joliet and from Northwest Indiana to Rockford.
AIRE President Chris Gary, a vice president in the Oak Brook Terrace office of NAI Hiffman, said the market is seeing increased lease and sale activity, upward pressure on sale and rental rates, increasing signs of new construction and an overall climate that is conducive to activity on both sides of a transaction in the 1.3 billion-square-foot industrial market.
Adam Tarantur, also a board member and a principal with Riverwoods-based Podolsky|Circle CORFAC International, further characterized Geary’s assessment of the marketplace saying, “The market is improving, with many of the key indicators trending upward.”
He also noted that some markets are faring better than others.
“The fundamentals of each market are very individual,” Tarantur said.
Tarantur suggested tenants that are less location-centric are in the best shape to get the most attractive deals in the market.
“If you are tied to a market that is tightening, with little in the way of new or second-generation space coming on line, rents and sale prices will increase and favor the landlord,” he said. “But if your business can be as successful in one geographic submarket as another, you have much greater opportunity to find very attractive opportunities.”
Tarantur said he still encounters landlords who are “extremely motivated” demonstrating that the health of the marketplace is a combination of factors, including market conditions and the overall financial health of building ownership. Those conditions, he said, “can take longer to be restored.”
While AIRE and the industry continue to point to increased development, developers remain cautious and perhaps even more analytical about the number of buildings they are putting up.
“Developers develop, that’s what they do,” Tarantur said. “There has been pent-up demand, and so we are seeing more activity to fill a void in the market.”
But Tarantur and his AIRE board member counterparts see developers as being very analytical about their portfolios, with many being conservative about their strategies because they don’t want too much vacancy — too much exposure — on the books at one time.
Robin Stolberg, a vice president with Jones Lang LaSalle, points to supply and demand fundamentals as being the key driver that is changing the face of the market. The AIRE board member said that in many markets across Chicago, tenants are seeing a considerable shift in the supply side.
“One year ago users in the market with varying size requirements had a healthy amount of options at any time, searches yielded 12 to 15 viable options,” Stolberg said. “Now, in certain market areas, that supply of viable options is often cut in half.”
Stolberg added that users are feeling increased pressure to make decisions because the best options aren’t staying on the market for months at a time like they did one year ago.
AIRE board member Adam Marshall, a vice president with brokerage firm NAI Hiffman, called the return of user sales one of the industry’s most exciting trends in late 2013 and into the early stages of 2014.
“Over the last several years, few wanted to buy industrial real estate,” he said. “But we are seeing a willingness on the part of banks to make more loans. The SBA lending program is very popular right now as a way for businesses to acquire real estate with only 10 percent down and lock in historically low interest rates for up to 20 years. “
Marshall added that even if interest rates move higher by several basis points, “acquisitions will remain quite viable.”
Marshall said companies with good credit are having increasing opportunity to take advantage of the great values that exist in the market and couple them with attractive interest rates. In turn, as the market continues to improve, there should be positive pressure on real estate values, which would provide asset appreciation for those investing in today’s market.
AIRE members like Marshall also are seeing that the proliferation of distressed assets in the market are dissipating, a further harbinger for strengthening market conditions.
“Much of the distressed product inventory, which served to drag down values, has been absorbed,” Marshall said.
AIRE board member John Coleman, executive vice president, Transwestern, noted that lease and sale activity in the 40,000-square-foot to 100,000-square-foot tranche has been very healthy for the last year, and is expected to continue.
He also said a high percentage of the transactions reported had occupiers taking more space, not less, a trend he sees continuing.
“We are seeing specific activity in business sectors such as data storage, plastics, food, building products, medical supplies and logistics and transportation,” Coleman said. “We also represented users making point-of-purchase and retail displays, companies that sell used industrial equipment overseas, packagers and laboratory users that deal with things like research and development.”
He noted a few reasons, including a 9 percent increase in customer demand over the same period in 2012; increasing confidence in a rising economy; and greater availability to capital which have greased the go-forward wheels and compelled decision-makers to enter the market.
Backed by the positive statistics and trends in the market, Gary is optimistic about the industrial markets and believes there is great opportunity for business owners.