Midwest Market Reports

Minneapolis Industrial Market Remains Strong Despite Current Debt Challenges

by Kristin Harlow August 31, 2023

By David Berglund, JLL The Minneapolis-St. Paul industrial real estate market continues to show strength as tenant demand and leasing activity keep vacancies low and absorption steady. In the second quarter of 2023, there were more than 4 million square feet of leasing and 523,641 square feet of net absorption, which pushed vacancy rates down slightly to 3.6 percent. In addition, roughly 800,000 square feet of speculative development was removed from the market. Currently, there is just 2.7 square foot of available space for every square foot of tenant demand. Year-to-date absorption was nearly 2 million square feet, led by the Northwest submarket with nearly 1.3 million square feet of that total since January. The Northwest submarket has been leading in absorption in four of the past six quarters. Asking rents increased to $6.21 per square foot and first-year rents continued to climb to $9.13 per square foot, reflecting an 11.5 percent growth over 2022. With very low vacancy and limited supply coming, we are continuing to see favorable conditions for landlords in the Twin Cites industrial market. New high-water marks for rents will likely continue into 2024. Investment sales, however, tapered off significantly as the impact of several incremental …

August 31, 2023

Market Reports Midwest Market Reports Retail

Retail Sector Is on its Way to Becoming Darling of Commercial Real Estate Market

by Kristin Harlow August 24, 2023

By Jared Shapiro, Marcus & Millichap The commercial retail market is a consistently evolving landscape that plays a vital role in shaping our economy. With consecutive months of broad growth, health and convenience remain a priority for shoppers. With the combination of more households planning seasonal trips and underlying tenant demand remaining extraordinarily strong, the commercial retail sector has become the “darling of the industry.” As seen in the June meeting, the Federal Reserve took a rate hike hiatus for the first time since March 2022, which should lead to some stabilizing of the capital markets. Is the retail investment market poised for a growth and boom cycle? In short, the answer is yes. Currently, there is a lack of for-sale inventory on the market for multi-tenant shopping centers, which is creating a scenario where we are consistently seeing multiple qualified offers on deals that we are seeing in the market. As we are getting deeper into the summer months, the flow of 1031 exchange money will continue to grow. This will be a positive element for the single-tenant net-lease sector, as it has historically seen the most aggressive buyers of triple-net deals in 1031 exchanges. When viewed from …

August 24, 2023

Illinois Industrial Lee & Associates Market Reports Midwest Midwest Market Reports

New Construction Deliveries Bring Chicago’s Industrial Market Down from the Clouds

by Kristin Harlow August 17, 2023

By John Cassidy and Calvin Gunn, Lee & Associates If you love a good groundbreaking photo — full of shiny shovels, hard hats and smiling development teams — you may be disappointed this year, for all the best reasons. With Chicago’s most recent wave of speculative industrial projects currently being delivered, the market now actually has space to offer industrial tenants — a refreshing change from the past few years. With construction costs and interest rates continuing to rise and credit availability shrinking, many developers with ties to Chicago are pausing new projects as exit cap rates are becoming more difficult to predict. At the same time, market fundamentals are starting to cool from the pandemic-era eruption of demand. The good news: Chicago’s industrial market may be down from the clouds, but it’s still historically quite healthy. Vacancy rate in perspective According to Lee & Associates of Illinois’ second-quarter industrial snapshot, construction deliveries caused the Chicago industrial vacancy rate to tick upward for the second consecutive quarter. However, a 3.68 percent vacant market is still considered a historically low vacancy environment. As a comparison, that vacancy rate measured about 12 percent at the end of 2009 and 6.6 percent in …

August 17, 2023

Market Reports Midwest Midwest Market Reports Multifamily Ohio

Driven by Multifamily Construction Boom, Cleveland Is No Longer a Secondary Market

by Kristin Harlow August 10, 2023

By Jamie Dunford, CBRE Outside of office product, Cleveland and Northeast Ohio haven’t historically been of interest for most out-of-town multifamily developers and investors. They viewed the region as a tertiary or secondary market with a declining population and a lackluster economy. Until recently, urban living in the central business district (CBD) and surrounding neighborhoods was rare — Cleveland was a commuter city with a strong office market from the 90s until the Great Financial Crisis (GFC) in 2008. At one point in time, Northeast Ohio boasted one of the highest concentrations of Fortune 500 companies with headquarters or other office space in the region, and the CBD had the largest job hub in the state of Ohio. Most office buildings in the CBD were owned by institutional capital or national developers. However, the GFC vastly altered this landscape as unemployment rose, companies left or downsized, and many office assets went back to the lender. This left an oversupply of office product in the market, and the older buildings suffered the most. However, this created a market opportunity that Cleveland developers seized, and the city eventually became a national leader in converting historic office assets to multifamily while taking advantage …

August 10, 2023

Iowa Market Reports Midwest Midwest Market Reports Mixed-Use

Cedar Rapids: a City with Momentum

by Kristin Harlow August 3, 2023

By Scott Olson, Skogman Commercial Despite a derecho, a pandemic, inflation, supply chain issues and a possible recession, Cedar Rapids continues its rapid growth as evidenced by the ranking by “American Growth Project 2023” as a top 15 fastest-growing mid-size U.S. city. But, its other national rankings are just as impressive: • 23rd-Best Run City in U.S. (wallethub.com, 2023) • Top 100 Best Places to Live in America (Livability, 2023) • 23rd-Best Place to Raise a Family (wallethub.com, 2023) • 13th-Best City to Buy a House (niche.com, 2023) • Ranked No. 21 of Cities with Lowest Cost of Living (Business Insider, 2023) • A Cleanest U.S. City by Short-Term Particle Pollution (American Lung Association, 2023) • Two Nationally Ranked Medical Centers: St. Luke’s Hospital and Mercy Medical Center (PINC Al/Fortune and Newsweek, 2023) • Top 50 Best City for Jobs in America (wallethub.com, 2023) • No. 22 Safest City in America (wallethub.com, 2022) • Best Tasting Drinking Water in Iowa (Iowa Section, American Water Works 2022) In addition to these rankings, Cedar Rapids is also continuing to make major progress on recovery from previous national disasters: • 2008/2016 historic floods are resulting in the $750 million flood control system making …

August 3, 2023

Market Reports Michigan Midwest Midwest Market Reports

Commercial Real Estate Values Are in Flux

by Kristin Harlow July 20, 2023

By Anthony Sanna, Integra Realty Resources The commercial real estate (CRE) market is facing a time of uncertainty and anxiety as we move further into 2023. A variety of factors are contributing to investor sentiment being low, including the threat of higher interest rates impacting commercial loans, fears of a declining CRE market, and concerns about recessionary pressures, inflation and a liquidity crisis currently taking shape. The question on everyone’s mind is where values are going and what trends we can expect in the coming months. Signs of a softening market National data analytics firms are already reporting a 10 percent value decline across most asset classes, except for industrial real estate. While this indicates there is downward pressure on pricing, it’s important to remember that appraisal data is somewhat backward-looking and may lag behind current pricing trends. Additionally, tracking recent transactions from six to nine months ago may not represent the boots on the ground experience happening at this very moment. Admittedly, appraisers are rear-view mirror-focused (tracking transactions) while the actual market is windshield-focused (future transactions). Despite this, recent examples in daily work indicate a downward pricing trend. Recent purchase contracts have been re-traded and amended, often with lower …

July 20, 2023

Market Reports Midwest Midwest Market Reports Office Ohio

Cincinnati Office-to-Multifamily Conversions Are on the Rise

by Kristin Harlow July 13, 2023

By Anthony Armbruster, Colliers Although converting former office buildings to multifamily properties is by no means a new practice, conversions have been on the rise in recent years due to the changing work environment and office landscape. While the COVID-19 pandemic has started to fade away in many peoples’ minds, several of the changes in the work environment during that time have not. Many formerly in-office employees continue to work from home or have hybrid schedules post-pandemic. Additionally, tenants who are moving into new office spaces have shown a preference for smaller, more efficiently laid out, amenity-rich and suburban Class A office spaces. These changing consumer preferences have resulted in higher vacancies and fewer new tenants for older downtown office buildings than before the pandemic. Consequently, many of these older buildings are being converted into residential spaces, exemplifying the trend. An office building may be considered for a residential conversion when it is no longer economically feasible to continue running the building as such. However, not every office building at the end of its economically useful life is a suitable candidate for a residential conversion. Factors such as a building’s layout, location, age and cost of conversion play the most …

July 13, 2023

Industrial Iowa Market Reports Midwest Midwest Market Reports

Tenant Demand Remains Strong for Des Moines Industrial Space

by Kristin Harlow June 22, 2023

By Jeremy Spillman and Corey Sedrel, Capstone Commercial In a setting where I-80 and I-35 intersect to make up one of the busiest truck traffic intersections in the Midwest, Des Moines is well positioned to harness the power of manufacturing in Iowa to support several larger Midwest cities such as Chicago, Minneapolis, Kansas City, St. Louis and Omaha. As we see change in our global supply chains, manufacturers and distributors look to states like Iowa to support these changing environments where we see these organizations moving away from the just-in-time model to just-in-case. The transition to a just-in-case supply chain model began to form due to several supply chain-related issues we encountered during the pandemic. This led to higher demand for additional warehousing to be constructed. Availability of large cube warehousing had been historically tight in Iowa since 2012 where most years carried vacancy rates of 2.5 to 4.5 percent annually. During 2022, there was 2.97 million square feet of warehouse/distribution space delivered to meet the increase in demand of rising inventories. “From the construction standpoint, supply chain issues are subsiding, but there are still longer than normal lead times for certain trades and equipment. These lead times are still …

June 22, 2023

Illinois Market Reports Midwest Midwest Market Reports Retail

Chicago Neighborhoods Experience Flurry of Positive Signs for Retail

by Kristin Harlow June 15, 2023

By Jaime Bertsche and Lara Keene, Mid-America Real Estate Positive signs for retail real estate abound across many Chicago neighborhoods and high streets, with physical stores demonstrating their necessity coming out of the pandemic. Both of us live and work in the city of Chicago, so it’s particularly heartening to see favorable trends and leasing activity throughout our city of neighborhoods. It may surprise some to know that Chicago has been No. 1 in corporate expansions for the last nine years, with 441 major business expansions and relocations in 2021. Chicago employment has grown by 75,000 since the start of 2022 and ranks third in the U.S., according to World Business Chicago. Google is investing in the city and purchased the 17-story, 1.2 million-square-foot Thompson Center in the Loop with plans to use the building as a second Chicago headquarters. Kellogg announced it will move a spinoff company to Chicago for a new headquarters in the city. Some of the economic changes we saw in the market in the second half of last year affected retailers’ expansion plans. Inflation and interest rates challenged retailers to maintain their customer base, keep their own costs in line, and adapt to higher …

June 15, 2023

Illinois Market Reports Midwest Midwest Market Reports Multifamily

Chicago’s Multifamily Sector Boasts Healthy Occupancy Rates, Strong Rent Growth

by Kristin Harlow June 8, 2023

By Mark Stern, JLL Chicago’s multifamily sector currently enjoys strong market fundamentals highlighted by healthy occupancy rates and continued rental rate growth. The current core apartment rents average over $4 per square foot, which is higher than previous peak pricing. After the pandemic, rental rates between late 2021 to 2022 recorded 10 to 15 percent growth, which is substantially ahead of the historical norms. Currently, the Chicago rental market is experiencing more stable rent growth in the 3 to 4 percent range. Chicago remains one of the most affordable major markets to rent an apartment when looking at the current average effective rents as a percentage of median household income. This affordability will allow owners to continue to push rental rates in the future. One of the major factors leading to strong operating fundamentals in the Chicago market is the lack of new supply. The supply in Chicago is currently 1 percent of the inventory, which is quite low in comparison to other markets where there could be as much as 10 to 12 percent of the inventory under construction. In the city, there are just over 7,000 units under construction slated for delivery between 2023 and 2024. The majority …

June 8, 2023

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