Commercial real estate companies seek industrial opportunities across the country, Chicago

While tempered growth is expected to occur nationally, industrial real estate is booming in Chicago.

While national figures indicate slow but steady growth in the industrial real estate market, Chicago is leading the way with robust pricing and asset availability.

As reported by the National Real Estate Investor, fundamentals effecting the industrial segment showed improvement during the first quarter of 2013, although at a slower pace than expected. Vacancy among distribution centers and warehouses declined to 11.9 percent, falling by 20 basis points. That figure aligns with the ongoing decline in industrial vacancy rates as the past year has experienced a decline of more than 110 basis points.

According to Reis forecasts, the decline in vacancy rates should continue at a faster pace throughout 2013. Most likely, this dip will contribute to 2 percent rent growth, spurring increased construction start activity. All in all, expectations are moderate as smaller property owners will likely prioritize occupancy, putting downward pressure on rent levels.

How now, Chicago?
While the national vacancy rate fell to 12.2 percent, Chicago is experiencing an industrial vacancy rate of 8.2 percent during the first quarter. Such a tight inventory is persuading many investors to enter secondary markets. Developers are breaking ground.

"In several submarkets we're seeing spec construction, either planned or coming out of the ground," Britt Casey, executive director of Cushman & Wakefield, told NREI. "These users no longer want to be in lower clearance buildings, they see the efficiency of a 36-ft., exterior dock product. At the same time, there are many firms that don't need to be in high-premium intermodal facility footprint, but with 1,000 movements or less per year, can be along I-80 within five-10 miles."

With help from increased activity in Midwest manufacturing – responsible for more than 25 percent of industrial leases signed in the first quarter – Casey said there is a push by many for high quality properties. 

"Class-A product in the I-55 and I-80 corridor continues to be priced at very aggressive levels, with 6 percent cap rates and below," Erik Foster, principal and practice leader of the Industrial Capital Markets team, told NREI. "Class-A properties are being held by investors, leaving little product available, forcing investor demand into the class-B asset class."

As reinforced by Casey, the higher vacancy rate and available land of the I-80 market holds the greatest potential for larger facilities and business parks, despite the Class-A property-heavy I-55 submarket that is posting the greatest demand.

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