Market Reports

New Chicago Office Markets Shape Perception of the City

by Kristin Harlow June 14, 2018

It’s an exciting time to be part of the action in Chicago’s real estate market. While Illinois remains an “outflow” state, construction cranes dot the Chicago skyline and the city’s inflow numbers remain positive. Large employers are considering Chicago for campus-like headquarters operations and exciting markets are continuing to grow. In particular, west side blight continues to be replaced by residential growth in the West Loop, with retail services finally gaining momentum despite slow adoption by soft goods merchants. The West Loop’s immediate neighbor to the north, Fulton Market, maintains its buzz as the popular new kid in town, demonstrated by its ability to attract office tenants. Yes, office tenants. Transportation for workers, the primary objection to Fulton Market that has previously knocked it out of contention, will continue to be a challenge as public options slowly catch up to the development in the area. Employers will have to be creative in providing alternatives for new talent not within reasonable cycling or ride-sharing range. How did this happen when a decade ago the notion of office space west of the expressway was thought to be an absurd one? Because Chicago is not landlocked to the west by any natural barriers, …

June 14, 2018

Illinois Market Reports Midwest Midwest Market Reports Multifamily

Deconversions, Adaptive Reuse Drive Chicago Multifamily Investment

by Kristin Harlow June 7, 2018

Resilience in the Chicago apartment market amid a historic construction boom is creating opportunities for multifamily investors, particularly those who are willing to go the extra mile — sometimes literally — to capitalize on rent growth outside the downtown core. Across the city in outlying neighborhoods like Uptown, Rogers Park and Pilsen, value is being discovered in vintage buildings due to their high appreciation potential. In addition to circumventing rising material and labor costs, buyers of existing buildings are benefiting from their ability to collect rents now, while there’s still room for growth, rather than going through the time-consuming development process that has cast a shadow over some pipeline projects. Wave of deconversions Condo deconversions have been a popular choice among investors in recent years, with nearly 2,000 units deconverted at a combined market value of approximately $437 million since late 2016 in Chicago, according to data from CoStar Group and Interra Realty. When executed well, these transactions create a win-win for both parties involved. Condo owners, some of whom are still trying to recover value lost during the recession, can usually sell their units at a higher price than they would have achieved on their own, particularly in older …

June 7, 2018

Illinois Market Reports Midwest Midwest Market Reports Office

For Some Office Tenants in Chicago, Being Out of the Loop Is In

by Kristin Harlow March 8, 2018

Office developers in Chicago are thinking outside the box — and outside the central business district — in order to cater to tenants in search of creative office space. While there will always be companies that want the cachet that a business address in the Loop offers, others realize the strategic advantages of urban, non-CBD locations as a recruiting tool. Live/work/play neighborhoods like River North and the West Loop are growing because high-profile employers want to attract a younger workforce that is drawn to the loft-style offices these neighborhoods can provide. This can be achieved either through ground-up development projects like McDonald’s soon-to-open headquarters at 1035 W. Randolph St., or adaptive reuse projects such as 1K Fulton, a former cold-storage facility that now counts Google among its tenants. Yet as rents in these submarkets continue to climb, office users are starting to ask whether they can get the same space for less money in equally desirable locations. For many, the answer is a resounding “yes.” New opportunities While neighborhoods near the CBD such as River West and Pilsen have benefitted from this office “ripple effect,” Chicago’s recently rezoned North Branch Industrial Corridor is perhaps the most alluring and uncharted territory …

March 8, 2018

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Chicago Hotel Supply Growth Is in Line With Other Markets

by Kristin Harlow February 8, 2018

Back in mid-2017, in a piece that was published right here in Heartland Real Estate Business, I talked about what might be in store for the remainder of the year. Specifically, I wrote that while “concerns about oversupply will likely persist in many [Midwestern] markets,” the outlook was not as grim as some industry analysts had been forecasting — a “second wind in the hotel sector” was “helping to calm the waters.” The general sense was that we would continue to see moderate growth. Happily for hoteliers across the Midwest, the market has played out fairly close to those predictions. A generally better-than-expected second half of the year didn’t allay everyone’s concerns, of course. I participated in an investor call recently with some of our lenders and their local analysts, and they were still talking about the threat of oversupply. They expressed some concerns about the prospect of the hotel boom in my home market of Chicago turning into a bust. Oversupply is a valid concern. From where I stand, however, the pattern over the past six to 12 months is not showing any real sign of changing. While the rate of growth has slowed slightly, the demand side of …

February 8, 2018

Illinois Market Reports Midwest Midwest Market Reports Retail

How to Find the Formula for Success in Chicago’s Retail Market

by Kristin Harlow February 1, 2018

Successful retail development, especially in today’s evolving retail environment, needs constant re-evaluation by developers as well as municipalities. In some cases, the old rules are being rewritten to allow for more creative uses of otherwise stagnant — and sometimes historic — properties. The city of Chicago’s Industrial Corridor Modernization Initiative, designed to relax zoning in areas once reserved for manufacturing, is an excellent example of a notable shift that will allow developers to execute new strategies for retail development, often in combination with other uses. The recently adopted guidelines for the North Branch Industrial Corridor, the first of 26 such areas in Chicago to be evaluated, suggest the formula that will be needed to help realize the city’s ambitious vision. Neighborhood workforce With employers increasingly focused on attracting and retaining talent in a tight labor market, they are seeking locations with a mix of retail amenities that their employees can take advantage of before, during or after the workday. Increasingly, this mix is found in neighborhoods outside the downtown core that offer a relative value when it comes to office rents — another benefit for companies looking to make a move. In some cases, office and retail are located in …

February 1, 2018

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The Middle Ground: The Next Great Opportunity for Chicago Multifamily

by Kristin Harlow September 7, 2017

Like other metros, Chicago is in the midst of an apartment boom where the hum of multifamily construction has become commonplace. In fact, approximately 8,000 new rental units are slated to deliver by the end of next year, according to Appraisal Research Counselors. Nearly 4,000 units are expected to deliver in 2019. The majority of this multifamily construction is concentrated on Class A rental high-rises. SixForty (640 N. Wells St.) by JDL Development and 8 E. Huron by CA Ventures — both of which The Habitat Co. will be managing — aim to meet the demand of those looking to be closer to the influx of new businesses moving downtown, as well as an urban lifestyle with robust dining and entertainment options. Like its metro counterparts, Chicago has become a city of renters. According to Harvard University’s Joint Center for Housing Studies, the U.S. homeownership rate hovered at just 64 percent at the start of 2017, following 12 years of decline, while the number of renters continued its upswing. In the past five years, an average of 1 million new renter households were formed every year, per the National Multifamily Housing Council. Indeed, these have been good years for those …

September 7, 2017

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Lifting the Veil on Chicago and Cook County Real Estate Taxes

by Kristin Harlow July 6, 2017

It seems like politics watchers and the news media like to establish a veil of mystery around Cook County tax assessments. And although it sells papers and conjures an atmosphere of the unknown, the most important thing to know about tax relief in Cook County is the role of market value in assessments and how taxes are calculated. On June 13, taxing entities announced that tax rates in the City of Chicago would be going up approximately 10 percent. The second installment 2016 tax bills were scheduled to be published around July 1 with a very short payment deadline of Aug. 1, 2017. Those bills will reflect all changes to assessments, as well as the new tax rates. Tax increases make good headlines, but the increases were not a real surprise. The large anticipated property tax increases arise from a local ordinance designed to recapture a portion of the City of Chicago’s and Chicago Public Schools’ large budget deficits and pension plan deficits. This local real estate tax increase resulted from the absence any current resolution of the continuing budgetary stalemate between the general assembly and the governor’s office in Springfield, Illinois. The table below illustrates the potential real estate …

July 6, 2017

Illinois Industrial Market Reports Midwest Midwest Market Reports

Priming Chicago’s Industrial Corridors For 21st Century Development

by Kristin Harlow June 22, 2017

As Chicago has emerged as one of the country’s top tech capitals, large parcels of land across the city -— many set aside for manufacturers that no longer do business there — have remained stuck in the past, serving as roadblocks to billions of dollars in new real estate development. That’s about to change thanks to a yearlong effort spearheaded by Mayor Rahm Emanuel and the city’s Department of Planning and Development, which recently approved recommendations for modernizing the first of 26 industrial corridors across the city. The recommendations are the result of a community engagement process that solicited feedback from various stakeholders, including our firm and other real estate developers. The plan will pave the way for new residential and commercial projects throughout the North Branch Industrial Corridor, which stretches from Kinzie Street to just north of Fullerton Avenue along the Chicago River. These investments, which include much-needed infrastructure and open space initiatives, will engage the adjacent riverfront and create mixed-use environments. The early years In the 1980s, the city of Chicago designated a series of industrial corridors and Planned Manufacturing Districts (PMDs) — many along waterways and railways — to protect the city’s industrial base from encroachment by …

June 22, 2017

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Strong Tenant Demand Continues to Propel Chicago’s Office Market

by Kristin Harlow June 15, 2017

In spite of the ongoing fiscal woes of the State of Illinois and City of Chicago, the downtown office market in the Windy City continues to experience solid growth in demand for quality office space. The first quarter of 2017 saw net absorption of 374,000 square feet, a 54 percent increase from the 243,000 square feet of net absorption recorded during the first quarter of 2016. This comes on the heels of a spike in supply in the central business district (CBD) of Chicago, with the opening of two new Class A office towers during the past two quarters: 150 North Riverside Plaza and 444 West Lake Street, developed by Riverside Investment & Development Co. and Hines Interests, respectively. These trophy assets added 2.4 million square feet of office space to the CBD. With these additions, Chicago’s office inventory in the CBD expanded from 132.6 million square feet in the first quarter of 2016 to 135 million square feet in the first quarter of 2017. Two additional towers under construction now at 151 N. Franklin Street and 625 W. Adams Street will open in the next 12 months, adding an additional 1.3 million square feet to the supply and bringing …

June 15, 2017

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2017 Poised to Be Another Great Year for Chicagoland Industrial

by Kristin Harlow April 6, 2017

The Chicagoland industrial market has started 2017 with a full head of steam and doesn’t appear ready to cool down anytime soon. With historically low vacancy rates, high net absorption and strong tenant demand, the outlook is positive for new construction in the pipeline, even with the recent uptick in interest rates. Net absorption of industrial space topped 19.3 million square feet in 2016, outpacing the 18.2 million square feet of new product delivered, according to CoStar Group. The metro Chicago vacancy rate at the end of the year was 6.5 percent, a drop of about 50 basis points over the previous 12 months. As for 2017, we see increasing competition for well-located land sites, especially from speculative developers who see opportunity in the rising demand for state-of-the-art facilities equipped for today’s sophisticated users. The jungle effect We have seen strong activity from tenants ranging from global logistics providers to regional distributors. However, a large share of the total net absorption in 2016 came from one well-known and much sought-after tenant — Amazon. The retailing giant has been leasing warehouse/distribution space at a rapid pace, and it seems as though every other week we are reading about a new distribution method, business …

April 6, 2017

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