NAI Hiffman is pleased to present the First Quarter 2018 Market Peek, a first look at the market statistics for the Chicago metropolitan office and industrial real estate markets.
Industrial: New Deliveries Slow, but Construction Pipeline Remains Solid
Developers continue to manage new inventory to align with deal velocity and completions as construction deliveries totaled 2.5 million square feet (msf) during the first quarter of 2018, just over half of the 4.4 msf completed this time last year. This marks the lowest number of completions since third quarter 2014, where deliveries totaled 2.3 msf. The largest delivery was the RidgePort Logistics Center – an 810,000-square-foot (sf) speculative warehouse/distribution facility located in Wilmington that delivered vacant first quarter.
A total of 12.6 msf is under development, with 73.9 percent of those projects under construction on a speculative basis. Build-to-suit projects under construction include the 1.3-msf facility for IKEA in Joliet that is nearing completion, and a 381,000-sf facility for CRRC Sifang America located on the south side of Chicago.
Net absorption totaled 3.7 msf first quarter with companies including Kenco Group in Monee (701,000 sf), Central American Group in Romeoville (500,000 sf),The Clorox Company in Monee (402,000 sf) and Ozburn-Hessey Logistics in Bolingbrook (270,000 sf) all taking occupancy during the first three months of the year.
Office: Suburban and Downtown Vacancy Continues to Tighten; Leasing Activity Increases
The suburban office market continued to improve during the first quarter in 2018. Positive absorption, albeit slight, occurred in consecutive quarters for the first time since 2015, driving down vacancy rates 36 basis points to 19.29 percent. Absent the previously announced departure of GE from a Barrington asset, the net absorption figures would have brought vacancy rates to a flat 19.0 percent. With 10 percent growth in new leasing activity over fourth quarter 2017, the encouraging velocity could suggest positive absorption is set to continue in 2018.
While agreements were structured for additional high value transactions, such as the $148 M Presidents Plaza purchase in O’Hare by Angelo Gordon, the largest deal to be closed in the first quarter was the sale of Windy Point II in Schaumburg for $43.9 M. It was acquired by Bridge Commercial Real Estate as part of a 13-property portfolio sale which also included Windy Point I for $27.5 M and 2300 Cabot Drive in Lisle for $20 M.
In the CBD, market conditions also continued to steadily improve during the first quarter. The vacancy rate improved by 28 basis points to 12.0 percent as the market absorbed over 550,000 square feet. Overall leasing activity was also strong, as it increased by 18 percent over 2017 Q4, propelled by some large leases like Morgan Stanley’s 122,256 square feet in the West Loop.
With the Sterling Bay purchase of Prudential Plaza occurring just after the close of the first quarter, the largest acquisition to occur was made by the same company at 600 West Chicago for $510 M.