Three factors that kept Chicagoland industrial cap rates resilient in the first half of the year? CBRE points to robust leasing activity, low vacancy rates and a healthy balance of supply and demand.
In the latest CBRE North America Cap Rate Survey, the firm found that cap rates for Class A industrial properties sit between 4.75 percent and 5.5 percent–a decrease from 2015, and just below the national average of 5.5 percent.
CBRE research shows this is due to Chicago’s historically low vacancy rate, which sits at 3.75 percent for all A-B-C Class types, as well as the spike in new product in core markets that continue to attract investors at high price points.
As Class A product continues to thrive, Class B and C product is now generating attention from core funds as well, according to Michael Caprile, vice chairman for CBRE.
“In Chicago, we are now seeing core funds and separate accounts target good, functional Class B product for cash flow,” he said. “For the B minus and C plus product, we are starting to see equity funds partnering with local buyers to purchase portfolios, further demonstrating the strength of the industrial market across all classes.”
The firm anticipates the Chicago industrial market to remain strong as demand continues to outpace supply.
The strength of the Chicago industrial market should persist as demand continues to outpace supply and developers have been more conservative about speculative construction projects in the current cycle.
There are currently five existing class A buildings in the Chicago industrial market for a combined total of 3.2 million square feet. CBRE data shows that of that number, 500,000 square feet are available.
The firm has tracked 10 tenants looking to occupy space within this range. Altogether, that brings the total space needed to 8 million square feet–more than twice the available supply.
In the first half of 2016, build-to-suits and speculative project construction starts made up 8.6 million square feet, with the latter having accounted for more. But not by much–build-to-suits comprised 47 percent of the construction starts in the first half, while spec projects comprised 53 percent.
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