Midwest Market Reports

Don’t Expect Metro Chicago’s Industrial Boom to Tail Off Anytime Soon

by Christina Cannon June 9, 2016

The Chicago industrial market continues its charge full steam ahead in 2016, driven by strong fundamentals, our diverse economy, intense investor demand and constrained development. After a strong first quarter, the second quarter seems to be keeping pace. Demand remains high and continues to outpace new construction. We will also see more new projects announced as developers see continued success with existing projects. At the end of the first quarter, the overall vacancy rate in metro Chicago was slightly over 7 percent, down 10 basis points from the end of 2015, according to CoStar Group. All of the major submarkets posted vacancy rates of 10.1 percent or lower. Robust leasing activity Positive absorption in the first quarter was approximately 3.4 million square feet. Chicago has seen positive absorption every year since 2011, and this year looks to be headed in the same direction. The most active submarkets of O’Hare, I-55 and I-80 recorded vacancy rates of approximately 4.8 percent, 7.4 percent and 8.9 percent, respectively. Vacancy rates in those submarkets will continue to improve as speculative development is gobbled up as quickly as it is built, and existing product continues to get leased up. The I-80 and I-55 submarkets alone …

June 9, 2016

Market Reports Midwest Midwest Market Reports Retail Wisconsin

From Brews to J. Crew: Retailers Tap Revamped Milwaukee-Area Warehouses

by Christina Cannon May 26, 2016

In real estate, where some see an eyesore, others can sometimes find opportunity. Such was the case with The Mayfair Collection, a new regional shopping center in Wauwatosa, Wis., located approximately 10 miles west of downtown Milwaukee. Just a few years ago, the 69-acre site was filled with old, obsolete industrial buildings that were mostly unoccupied, but the City of Wauwatosa and our firm, Chicago-based HSA Commercial, shared the vision of transforming the vacant industrial park into a vibrant mixed-use community. The project initially involved adaptively repurposing 1 million square feet of warehouse space into a contemporary retail destination that has brought national retailers like Nordstrom Rack and Saks Fifth Avenue OFF 5TH to Wisconsin. The development also has helped launch new national brands such as J. Crew Mercantile and Off/Aisle by Kohl’s. The once-empty industrial structures are now completely transformed into lively shops and restaurants that are drawing customers from all over southeast Wisconsin. Phase I: Find the right mix What historically made the site attractive for industrial use — its highly accessible location, at the interchange with U.S. Highway 45 and Burleigh Street, less than five miles north of Interstate 94 — also made it ideal for retail, …

May 26, 2016

Market Reports Michigan Midwest Midwest Market Reports Office

Detroit’s Downtown Revival, Led By Dan Gilbert, Gains Momentum

by Christina Cannon May 19, 2016

Detroit has become a five-sport town: The Pistons, Red Wings, Lions and Tigers have been joined by Dan Gilbert’s Bedrock Real Estate Services LLC, the entity that has made a sport out of assembling a downtown Detroit portfolio of commercial buildings. In the process, Gilbert is becoming the city’s biggest advocate. Talking about Detroit’s office market without including Gilbert’s latest investment is akin to discussing Detroit’s economy and excluding the automotive industry. The Quicken Loans founder and principal shareholder of the Cleveland Cavaliers put himself on the region’s real estate game board when the recession ended and he started buying up properties. To date, Gilbert and his team have amassed a portfolio of more than 85 properties in and around the downtown comprised of more than 13 million square feet and valued in excess of $2.2 billion. The March 2015 acquisition of the 43-story One Detroit Center at 500 Woodward Ave. — which has since been renamed Ally Detroit Center — and attached 2,070-space parking deck for well over $100 million was his biggest deal during the acquisition spree. Ally Financial is completing its relocation to the building this spring from the nearby Renaissance Center, as well as bringing employees …

May 19, 2016

Market Reports Midwest Midwest Market Reports Multifamily Ohio Uncategorized

Why Cleveland’s Thriving Downtown Apartment Market is on Solid Footing

by Christina Cannon May 12, 2016

It’s no longer a secret. Residential housing is one of the biggest stories to hit Cleveland’s central business district in over a quarter century. The only thing more impressive than the long list of residential projects that have been completed over the last five years is an even longer list of residential projects that are either planned or under construction. Despite this prolonged surge in activity, several questions remain, with most centered around the viability and sustainability of this sector. But before we take a look forward, let’s first take a look back. Downtown Cleveland has added approximately 1,700 new rental units over the past five years, with the total residential rental inventory standing at nearly 5,900 units. Last year alone saw 573 new units come on line as the direct result of converting nearly 500,000 square feet of former commercial and office space to residential. But despite this additional inventory, the occupancy rate has increased nearly 2 percent over the last five years, ending 2015 at 97.5 percent. Population surge in CBD The downtown area contains approximately 14,000 residents, a 79 percent increase since 2000, according to a newly released report from the Downtown Cleveland Alliance. The average rent …

May 12, 2016

Market Reports Midwest Midwest Market Reports Office Ohio

Dayton Office Market Continues Steady Recovery Amid Urban Renaissance

by Christina Cannon April 28, 2016

For the Dayton office market, it’s all about timing. In one of Miami Valley’s largest office leases in recent memory, CareSource early this year signed a five-year lease to occupy 50,000 square feet on two floors at the 486,000-square-foot Kettering Tower downtown. The nonprofit managed healthcare plan is the largest Medicaid plan in Ohio and the second largest in the United States. CareSource said it will assess current and future business needs and redistribute business units from corporate headquarters and offices at 40 W. Second St. to Kettering Tower. In addition, some staff hired during the first quarter of this year also will be placed at the new location. The CareSource location at Kettering Tower increases the company’s footprint to nearly 600,000 square feet in downtown Dayton. The four downtown Dayton locations — including CareSource’s corporate headquarters at 230 N. Main St., Ballpark Village at 220 E. Monument Ave., offices at 40 W. Second St. and Kettering Tower will support 2,200 staff. The $6 million build-out of the multi-tenant Kettering Tower is specifically designed to accommodate CareSource. Tower Partners LLC, an entity whose investors include New York businessman Albert Macanian, owns the building. But the deal bringing 300 new jobs …

April 28, 2016

Market Reports Midwest Midwest Market Reports Multifamily Nebraska

Why Omaha Apartment Owners Should Expect Another Banner Year

by Christina Cannon April 21, 2016

With a three-year average occupancy of 96 percent, Omaha’s apartment market has displayed strong fundamentals that we expect to continue this year and beyond. Given the strong tailwinds created by Omaha’s healthy economy — the local unemployment rate stood at 3.6 percent in January compared with 4.9 percent nationally — it is not surprising that occupancy is high, rents and revenues are rising and new developments continue. According to the recently released IREM fall 2015 Omaha Metropolitan Area Apartment Survey, the year-end market occupancy rate was a strong 96 percent, with the lowest submarket at 94 percent and the highest at an outstanding 98 percent. On a 10-year historical basis, the Omaha market’s occupancy rate has ranged from a low of 92 percent in 2008 to a high of 96 percent in both 2013 and 2015. Any owner will tell you a solid two percent gain in occupancy over a multi-year period has a significant impact on net operating income. Both rents and revenues continue to grow within the Omaha market. Most owners have been raising rents between 2 and 4 percent a year, and in some cases 5 percent. The general expectation is that rents and revenues will both …

April 21, 2016

Industrial Market Reports Michigan Midwest Midwest Market Reports Multifamily Office Retail

Strong Demand, Limited Inventory Spur New Construction in West Michigan

by Christina Cannon April 15, 2016

The commercial real estate market in West Michigan was quite active in 2015 across all property sectors, including one massive data center deal that is expected to spur billions of dollars in investment. Both new development and transactions involving existing facilities drove deal volume in 2015. Consequently, vacancy rates dropped while leasing rates generally rose. We expect a high level of commercial real estate activity this year as well. A lack of inventory for existing product will continue to drive new development in 2016. Industrial Strength The industrial market, in particular, has experienced a shortage of quality product to satisfy the demands of distribution companies from across the area. The greater Grand Rapids industrial market consists of approximately 115 million square feet. At the end of 2015, the vacancy rate was 4.1 percent. This marks a significant improvement compared with the depths of the Great Recession when the vacancy rate approached 10 percent. For the first time in years, we are seeing speculative development across all sizes of industrial properties. Lease rates for these speculative buildings are significantly higher than what we have experienced in the recent past due to the relatively high cost of construction. The good news for …

April 15, 2016

Industrial Market Reports Midwest Midwest Market Reports Nebraska

Omaha’s Thriving Industrial Market Shows No Signs of Slowing Down

by Christina Cannon April 7, 2016

It is difficult to find one aspect of the Omaha industrial market to highlight when recapping 2015. Quite frankly, about every single facet of the market improved last year: sale prices ticked up, land prices rose, absorption was positive, the vacancy rate was low, asking rental rates climbed, and there was plenty of new construction. There are no signs of this momentum slowing. What is even more telling is the steady trend in the same direction — the market has shown signs of improvement each of the last five years. There have not been one or two transactions skewing the metric. Sales prices of existing industrial property averaged $56 per square foot in 2015, and over 2 million square feet of inventory was sold. This is quite a jump over the average of $47 per square foot in 2014. We believe this uptick in sales prices is due to a number of factors, but most notably a combination of high demand, low inventory of platted industrial lots and high construction costs. Users have been forced to make a choice — build new product or rehab existing buildings. This dilemma has created a bit of an odd and possibly concerning scenario: …

April 7, 2016

Industrial Market Reports Midwest Midwest Market Reports Ohio

Speculative Construction Remains Rare Despite Toledo’s Tight Industrial Supply

by Christina Cannon March 31, 2016

The Toledo industrial real estate market continued its steady improvement in the second half of 2015. Tenant demand for space was solid at a time when virtually no new speculative space was added, which led to a shrinking vacancy rate. At the end of 2015, the vacancy rate stood at 6.8 percent, down from 7.2 percent at mid-year and 7.7 percent at the end of 2014. The market absorbed 564,947 square feet in the last half of 2015 on top of the 632,775 square feet absorbed in the first half of the year. With vacancy rates contracting, the overall average asking rental rate in the Toledo industrial market rose 10 cents to $3.14 per square foot between June 2015 and the end of the year. We have commented in prior reports on the dearth of new speculative construction in the region. This trend continues. Only one speculative building has been constructed in the market since well before the Great Recession. That building — a 100,000-square-foot warehouse/distribution building located in Overland Industrial Park in the North Toledo submarket and developed by Harmon Family Properties — was delivered in the second half of 2015. As of December 2015, the building was still …

March 31, 2016

Market Reports Midwest Midwest Market Reports Multifamily Wisconsin

Milwaukee Apartment Market on Track to Post Another Strong Year in 2016

by Christina Cannon March 24, 2016

We can expect to see a combination of new and familiar trends in the Milwaukee apartment sector in 2016 that will continue to attract investors to the local apartment market. What makes the start of 2016 different from 2015 is progress toward the normalization of monetary policy. In December, the Federal Reserve Board decided to raise the federal funds rate by a quarter percentage point, the first such increase in nearly a decade. The Federal Reserve Board’s widening may have an impact on the short-term rates, but the long-term interest rates that impact real estate values the most are influenced by the yields on the long-term U.S. Treasury bonds. We expect the long-term interest rates to stay low for the foreseeable future. When there is high demand for the Treasury bonds, the price of the bonds increase and the yields decrease, keeping long-term lending rates low. The two factors responsible for driving rates down in early 2016 are the high levels of volatility in stock markets around the globe and the drastic drop in oil prices. The volatility in the stock markets drives global capital to flow into the safe haven of bonds, and specifically the U.S. Treasury bonds, as …

March 24, 2016

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