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Midwest Market Reports

Market ReportsMidwestMidwest Market ReportsMultifamilyNebraska

Omaha’s Strong Apartment Fundamentals Draw National Attention of Investors

by Kristin Harlow

With an average occupancy rate of 96 percent at the end of 2016, coupled with a four percent growth in asking rental rates during 2016, Omaha’s apartment market continues to be a strong performer. According to apartment data research firm Reis, Omaha’s average asking rental rate has increased in every quarter for the past 23 quarters, and is expected to increase 3.6 percent in 2017. On the occupancy front, Reis expects the vacancy rate to finish 2017 slightly higher at 4.9 percent, which would still result in a projected healthy 95.1 percent occupancy rate. On a 10-year historical occupancy basis, Reis reports that the average occupancy over the past decade has been 95.3 percent. Meanwhile, the Institute of Real Estate Management (IREM) reports that the occupancy rate during the same period ranged from a low of 92 percent in 2008 to 96 percent in both 2013 and 2015. Since the beginning of 2007, the average annual increase in asking rental rates has been 2.7 percent, according to Reis. Over the past 23 quarters, the cumulative increase in asking rental rates has been 19.3 percent.   Investors take notice While Omaha may not have as robust rent growth as some East …

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Market ReportsMidwestMidwest Market ReportsRetailWisconsin

Flurry of New Development Fuels Retail Resurgence in Milwaukee

by Kristin Harlow

The Milwaukee-area apartment market wasn’t the only real estate sector to benefit from continued job growth and household formation in 2016. The optimistic employment outlook, together with an influx of millennials who, according to Gallup, are spending more on nonessentials, has benefitted the local retail market as well. It’s a trend that we expect to continue in 2017. Filling a retail void A market that historically has been largely underserved in terms of new retail development has essentially reversed its standing, with approximately 1.6 million square feet delivered in the last two years alone, according to CoStar Group. A more diversified economy less susceptible to the highs and lows of other markets, taken together with Milwaukee’s public-private partnerships and lower real estate taxes compared with neighboring states, has created a pro-development environment that appeals to retailers and developers alike. Known for its older stock of shopping centers, the region has seen a surge in redevelopment activity, particularly in the suburbs, where previously underutilized assets are being rebranded and reimagined. In November 2016, HSA Commercial acquired the 217,346-square-foot Brookfield Fashion Center in Brookfield, just west of Brookfield Square Mall. Built in 1986, the center houses stalwart tenants that have been retained …

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IndianaIndustrialMarket ReportsMidwestMidwest Market Reports

Greater Indianapolis Industrial Market Shatters Records

by Kristin Harlow

To say that the greater Indianapolis industrial market experienced a historical year in 2016 almost seems trite. By every measure, the city’s industrial records were shattered. Net absorption in 2016—8.3 million square feet—crushed that of previous years. Additionally, 11.2 million square feet of new leases were signed, which is more than the 2014 and 2015 totals combined. And, the market saw its lowest vacancy rate in 36 years at 3 percent – down from 5.8 percent at the end of 2015. Now that’s historic! The industrial market is on fire, and Indianapolis is among the brightest embers. While the city has always competed well with its peers, Indianapolis outpaced the competition in 2016. The city was ranked in the top 10 for industrial space absorbed last year, and it has a history of being “recession-resilient,” in that it is one of the few industrial markets that actually grew during the last recessionary period. The industrial market was tight heading into 2016 and tightened even further throughout the year as historic leasing demand dramatically outpaced new supply. After no new buildings were delivered in the third quarter of 2016, the fourth quarter produced four newly constructed industrial warehouses totaling 635,000 square …

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IllinoisIndustrialMarket ReportsMidwestMidwest Market Reports

2017 Poised to Be Another Great Year for Chicagoland Industrial

by Kristin Harlow

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 …

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HospitalityIllinoisMarket ReportsMidwestMidwest Market Reports

Hotel Sector is on ‘Glidepath to Oversupply,’ But Chicago Could See a Soft Landing

by Kristin Harlow

I am heartened to see that my projections for 2016 in the Midwest hotel marketplace — particularly Chicago, my home market — held up fairly well. In a column that I authored for Heartland Real Estate Business this time last year, I pointed out “the question of whether supply will outpace demand is changing from if to when in many of these markets.” That trend line has continued, although the momentum of it in some markets has, to some extent, delayed the inevitable. The demand side of the equation exceeded expectations in the fourth quarter of 2016 and so far in the first quarter of 2017. This has helped markets absorb the additional supply. I also wrote in last year’s column that “perhaps the single most important factor to watch with regard to the Chicago hotel market in 2016 is whether and to what extent strong leisure demand will continue to offset the influx of new hotel properties.” Sure enough, we saw strong leisure demand during the traditionally busy part of the year, and Chicago welcomed a record number of visitors during the first three quarters of 2016. Strong leisure and group segment performance during this period helped overall demand …

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Market ReportsMidwestMidwest Market ReportsMinnesotaMultifamily

Stars Are Aligned for Twin Cities’ Apartment Market to Remain Strong

by Kristin Harlow

Following the recession, demand for multifamily development took off in many areas of the country. We predicted it as significant economic and demographic changes were happening, spurring a shift from homeownership to renting. As a result, the multifamily sector experienced a resurgence that hadn’t been seen in decades. In some cities where an abundance of multifamily projects have been delivered, there is discussion of potential saturation. That’s not the case in the Twin Cities of Minneapolis and St. Paul, where demand for multifamily developments remains strong and the vacancy rate is an extremely low 2.6 percent. Based on data from the U.S. Census Bureau, at the end of 2016 the vacancy rate in the Twin Cities compared quite favorably with other metropolitan areas such as San Antonio, Texas (13.6 percent); Tampa, Fla., (11.6 percent); and Tulsa, Okla. (10.2 percent). Keep in mind that a 5 percent vacancy rate is considered to be a stabilized market. Healthy job growth Several economic factors continue to drive apartment demand in the Twin Cities, including job growth, low unemployment and a strong base for business expansion. Minnesota ranks third in the nation for number of Fortune 500 companies per capita. Prominent corporations with headquarters …

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IndustrialMarket ReportsMidwestMidwest Market ReportsWisconsin

New Industrial Supply Struggles to Keep Pace With Absorption in Milwaukee

by Kristin Harlow

Metro Milwaukee’s industrial market continued to be a strong performer in 2016, and this strength should continue for the foreseeable future. We’re now seeing a healthy uptick in new industrial development, and even speculative development in select submarkets. While the demand for industrial space has continued to increase, the new supply has failed to keep pace. Sustained quarterly absorption without a sufficient corresponding increase in new product coming to market continues to keep vacancy rates hovering around 4 percent, near the record lows, according to Xceligent and CoStar. The new industrial construction that is occurring continues to be driven by users expanding, relocating or consolidating their existing facilities and by limited build-to-suit developments undertaking Milwaukee-based firms such as Wangard Partners Inc., Phoenix Investors LLC and Briohn Building Corp. Spec building returns Speculative development is still relatively rare, but developers such as Zilber, HSA Development and Interstate Partners are all venturing into the speculative realm and with favorable results so far. HSA, for example, recently completed a 214,000-square-foot speculative building in Waukesha, and Zilber continues to build and fill buildings in the I-94 South corridor. In late 2016, Zilber unveiled plans for a 163,716-square-foot facility in Franklin and a 72,324-square-foot facility …

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Market ReportsMidwestMidwest Market ReportsOfficeWisconsin

Developers in Downtown Milwaukee Play With Hot Hand Due to Strong Demand

by Kristin Harlow

Ben Franklin, one of our nation’s Founding Fathers, famously said, “Well done is better than well said.” Milwaukee has a long history of ideas that are well said. There is no shortage of opinions and sound ideas on how to attract companies to the city, how to improve the public transportation system and how to get more people to live in the city. But these well-intentioned ideas, more often than not, don’t get implemented. Finally, after a decade of virtually no new development, things are happening. In the August 2015 issue of this magazine, I wrote a column focusing on development in downtown Milwaukee titled “Proposed New Arena for Milwaukee Bucks Could Lead to a Development Run.” Indeed, that’s what is happening. After much debate, the arena is finally under construction. It will span 715,000 square feet and hold 17,500 people.  Just as impressive is the ancillary development surrounding the arena, including the Froedtert & the Medical College of Wisconsin Sports Science Center that will serve as the new practice and training facility for the Milwaukee Bucks as well as a health center. The new Arena District will also be home to a “live block” comprised of four to five …

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Market ReportsMidwestMidwest Market ReportsOhio

Millennials Flocking to Downtown Columbus, Ohio

by Kristin Harlow

Millennials are the future, they’re concerned about the future and they’re bringing all of us into the future. This generation wants to live where they do their “living.” They want green space, bike paths, access to transit or shared transportation and an active neighborhood. In short, they want to live in downtown Columbus. Not the downtown of years ago, where the streets rolled up at 5 p.m. and you’d be hard-pressed to find a coffee shop open on the weekend. But the downtown of today, where green space is king, rooftops have followed, retail is popping up and there’s so much to do that sometimes it’s hard to decide what to choose. In 2002, the Columbus Downtown Development Corp. (CDDC) was formed and tasked with reshaping and revitalizing downtown Columbus into an urban hub. But would it work? Fifteen years later, we have the answer: the Millennials are coming, and they’re bringing everyone else with them. CDDC was created to lead game-changing city projects. Our ultimate goal is to give people and companies reasons to live, work and play downtown. We took an empty mall and turned it into an activated, mixed-use hub in the center of the city. We …

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IllinoisMarket ReportsMidwestMidwest Market ReportsMultifamily

Apartment Construction Boom Will Test the Resilience of the Chicago Market

by Kristin Harlow

Solid employment growth and the attractiveness of an urban lifestyle led to improvements in the multifamily market across metro Chicago in 2016. Although there was positive movement in the performance of key indices in both the city and the suburbs, corporate migration from the suburbs to the city brought young professionals and high-paying job opportunities, especially to the core. Millennials overwhelmingly favored renting over homeownership in 2016 and sought residence in urban centers offering walkability and a live-work-play lifestyle. In 2017, these trends are expected to continue. Job growth acts as catalyst Last year, Chicago employers hired 65,000 workers, representing a 1.4 percent workforce expansion metrowide. This healthy job growth helped boost the median household income to around $67,168 per year at the end of 2016. In 2017, job growth is expected to continue at a similar rate, and it is anticipated that Chicagoland employers will hire 70,000 new workers for a 1.5 percent employment gain over the course of this year. Employment gains last year were led by the professional and business services sectors, which expanded headcount by 2.6 percent with the creation of nearly 21,200 positions over the yearlong period that ended in September 2016. During the same …

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