Nation Industrial Market
CHICAGO
The second quarter could be characterized as “soft, but trying to turn the corner” for Chicago’s industrial marketplace. That’s an improvement vs. the past 18 months.
Manufacturing continues to post signs of a broadening economic recovery, which is good news for the industrial marketplace as a whole.
Overall space availability decreased slightly during the second quarter to 9.4%, indicating a relatively strong market when compared to previous availability rates.
But challenges still abound for property owners and landlords, as the market continues to favor tenants.
The forecast for the coming months is cautiously optimistic as small to mid-size companies seem to be actively seeking space in the market.
Manufacturing activity continues to post signs of a broad economic recovery with sector growth rates higher than they’ve been in several years.
The Chicago industrial market has benefited in some degree to these favorable economic conditions, but not to the extent where new hiring, substantive expansions, or increased capital investment have signaled a real, sustainable recovery.
As reported last quarter, small and mid-sized suppliers in the Chicago market continued to be very active during the second quarter. Production facilities, after a near 18-month mire driven by a record run-off of inventories, are increasing production to meet demand.
Transaction activity in the Chicago market supports this trend with leasing activity rising due to renewals and expansions. Most of this leasing activity is in the 20,000- to 50,000-square-foot range, however, as “big box” tenants to look for sustained economic growth before expanding.
Some long-term, large-scale leasing activity is occurring, but Chicago’s overall industrial market is being driven by small to mid-sized short-term activity.
It does seem as if the U.S. industrial market showed some signs of recovery during the second quarter, even if it’s a quarter later than initially projected. An economic recovery appears to be imminent, led by improving conditions for manufacturers and retailers.
This seems to be playing out in the Chicago industrial marketplace, where the Federal Reserve Bank of Chicago reported the Chicago Fed Midwest Manufacturing Index rose 3% from April to May, continuing the upward trend seen in previous months.
Institutional investors, albeit with extreme caution, are expressing great interest in investing in real estate.
Real estate market conditions present a formidable obstacle between buyers and sellers on ask and bid prices. Still, the real estate market doesn’t have the ups and downs of the stock market and investors who are savvy and diligent enough to correctly value a commercial property hedge themselves nicely.
The song remains the same with respect to the challenges still being faced by building owners,how to stimulate market activity when general market conditions are admittedly soft.
Many owners have answered this challenge with aggressive reductions in rents,we expect this aggressive pricing to continue.
In many markets, where the majority of property is institutionally owned and not owner-occupied, rental rate pressures have resulted in declines of 3% to 10% vs. previous asking rates. That level of reduction tends to run even higher in markets dominated by big-box developments and high vacancies.
OTHER MARKETS
Atlanta: The industrial real estate market is well positioned to lead us into recovery as it is regarded as a quick-correcting market because of its relatively short construction cycle. Economic activity in the manufacturing sector has experienced positive growth in the past few months … Boston: The weakest component clearly is the R & D; market with a vacancy rate of 13.5%. With the construction pipeline substantially depleted by year-end, expect the overall vacancy rate to peak around 12% and rents to be flat to negative by 5% to 10% by late-2002 or early-2003 …
Cincinnati: Demand stabilized in the second quarter, after a noticeable slowdown in the fourth quarter in 2001 and the first quarter this year. Activity in build-to-suit is mostly smaller developments, with some movement in multi-tenant, and no real activity in bulk space, except for completion of a couple of carry over transactions from last fall …
Kansas City: Industrial leasing activity is spotty, but conditions could be shaping up for a gradual recovery early next year. Overall vacancy increased 70 basis points in the last six months to 8.6%. The rate of increase, however, slowed in the second quarter. The speculative construction pipeline is nearly empty, a necessary step in the recovery process …
Miami: Vacancy in Miami-Dade’s industrial market inched up by 20 basis points vs. the previous quarter to 8.3%. Vacancy for general industrial and warehouse/distribution remained relatively stable at 5.2% and 11.9% percent, respectively. However, vacancy for R & D;/flex jumped 1.7%. The local industrial market continues to be negatively affected by the ongoing economic slump among many Latin American countries …
Minneapolis-St. Paul: Based on recent market trends, it appears that conditions in the Minneapolis/St. Paul multi-tenant industrial market are beginning to stabilize. Demand for industrial space has generated three consecutive quarters of positive absorption, and the vacancy rate held steady at 13.3% in the second quarter. …
New Jersey: In the second quarter, the Northern and Central New Jersey industrial availability rate increased slightly to about 7.7% as a rising supply of available space from corporate consolidations continued to hit the industrial market …
Philadelphia: The Philadelphia region saw a reverse of the previous quarter. Standard industrial space was hurt by negative absorption, which hit a three-year high, as did vacancy rates. Nonetheless, the region is still below the national vacancy rate of 8.9%. New completions were down dramatically since the first quarter …
Tampa: The overall vacancy rate rose slightly to 9.2% at the end of the second quarter. Leasing activity remains sluggish, as most tenants still are reluctant to make a move. Demand for space is flat in most sectors with the exception of small, freestanding buildings between 5,000 and 20,000 square feet.
