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Finding Liquidity in an Illiquid Market — Where Deals Are Getting Done in Chicagoland

Kristin Harlow — Thu, 16 Mar 2023 11:45:50 +0000

By Tyler Ziebel, Colliers Following one of the most active and aggressive periods in Chicago’s industrial capital markets history, 2022 ended as a year most market participants would rather forget. As the buying community returned to their desks and fastened their seatbelts for another year of fun in 2023, industrial sales brokers across the country are starting the year posed with a question from investors that hasn’t been asked in some time: “What are we going to be able to buy this year?” It’s easy to assume that investors will remain content to sit out of the turbulent market, but the answer to where we are, and aren’t, seeing liquidity requires a nuanced answer. In order to do that, we must take a quick look at 2022 and what set this uncertain market in motion. After several record-setting years for industrial leasing and sales in 2020 and 2021, accelerated by the COVID pandemic and a historically low interest rate environment, 2022 opened with the same frenzied pace and enthusiasm of 2021. But as the Federal Reserve pivoted its focus from keeping the economy stable to taming the resulting inflation, rapidly rising interest rates grounded institutional industrial transactions and development deals…

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Driving Factors Reshaping the Suburban Chicago Office Market

Kristin Harlow — Thu, 09 Mar 2023 12:45:17 +0000

By Jennifer Hopkins, MBA and Olivia Czyzynski, SVN Chicago Commercial The commercial real estate (CRE) industry has traditionally been relatively stable but can be impacted by the economy with normal ups and downs based on economic fluctuations. However, when COVID-19 hit, it was unprecedented and something the world had not seen in many years. The CRE industry started preparing for the changes that came along, including business shutdowns and many employees working from home. Although it was expected that the retail market would be the hardest hit sector, it turned out that the office market ended up being significantly impacted. The overall issues and pending work-from-home approach have had a major ripple effect on office markets across the nation. The Chicagoland market was impacted particularly hard, and this included the suburban Chicago markets. Chicagoland is broken out into several main commercial hubs: the city of Chicago, the East-West Corridor, the O’Hare market, the Northwest suburbs and the North suburbs. According to CoStar, office vacancy rates increased in all these markets. In 2020, the vacancy rates ranged from 7 to 20 percent, but currently stand at 18.8 percent, 17.3 percent, 16.9 percent, 23.2 percent and 11 percent, respectively. While no market…

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Lack of Multifamily Supply in Chicago Market Is Catalyst for High Rents

Kristin Harlow — Thu, 13 Oct 2022 11:00:12 +0000

By Tyler Hague, Colliers A colleague of mine recently had to move out of her West Loop apartment quickly and she faced a conundrum: how much am I willing to pay for a one-bedroom apartment in Chicago? The unfortunate answer: not even close to the $2,700 per month rent she was continually being asked to pay. She ended up renting a studio. The average price for a one-bedroom apartment in the central business district is $2,478 per month, a figure that has grown 9.5 percent in the last year alone and equates to a $235.41 year-over-year rental increase, according to Yardi Matrix. It also translates to a national housing insecurity crisis, not just a local and presumed urbanized problem, and one that has been exacerbated by many of the detrimental housing laws and zoning regulations that exist in Chicago today. Whether it is aldermanic privilege, the Affordable Requirements Ordinance (ARO) or general NIMBYism, it is clear rent is too darn high — and it isn’t the entrepreneurial real estate professional’s doing but rather a major (and obvious) supply dilemma. This summer, for the first time in U.S. history, median rent costs in major cities surpassed $2,000 per month, according to…

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As Uncertainty Continues in Office Market, What Should Tenants Do?

Kristin Harlow — Thu, 06 Oct 2022 11:45:41 +0000

By Ryan Foran, Cresa As we approach the three-year anniversary of the start of the pandemic, it continues to affect the commercial real estate industry in many ways, with no asset class impacted as significantly as the office sector. While retail initially stumbled but rebounded, and industrial soared to unexpected heights amid distribution emergencies, millions of U.S. office employees continue a tenuous balance of working from home versus going into the office. The pandemic wasn’t all bad news for office tenants. Many businesses with simple infrastructure and experienced staff have been so effective with remote set-ups that they have shed office space permanently and eliminated rent from the books. Others have embraced emerging technologies like virtual meetings and chat solutions to reduce the need for face-to-face interaction. In one way or another, most businesses were able to leverage this unique situation to improve their business processes, technology and personnel, and have embraced remote work at some level. But many businesses with younger, less experienced staff have reported ongoing struggles with recruiting, mentorship, culture development and staff retention. Some of these may have been amplified by complex external factors such as an ongoing labor shortage, an unprecedented resignation of our older…

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Online, Luxury Retail Brands Expand in Chicago Neighborhoods

Kristin Harlow — Thu, 16 Jun 2022 11:45:39 +0000

By Kelly Nickele, Mid-America As the summer season begins, retailers and restaurateurs in Chicago are scheduling tours for the city’s warmest months of the year, and overall leasing velocity is continuing to increase. Here’s a quick review of the top retail real estate trends in Chicago now. Digitally native brands continue to expand, embracing omnichannel sales strategies. I grew up at Fremont & Armitage in Chicago’s Lincoln Park neighborhood through my high school years. I remember when Aldo, Barbour and Bebe anchored Halsted, and United Colors of Benetton (now Interior Define), American Apparel (now Parachute), Intermix (now Outdoor Voices) and Hanig’s (now Marine Layer), were the mainstays of Armitage. I saw tenants like BCBG relocate from Halsted (now Apotheco Pharmacy) to Armitage (now Serena & Lily), and locals like Art Effect and Lori’s remain relevant while the trade area garnered national attention and the 60614 zip code continued to report strong catalog and ultimately e-commerce sales. I’ve experienced the rise and fall of many retailers, the emergence of digitally native brands, the major shift in how and where we shop and the influence of social media in the retail industry. As a consumer and a retail advisor, I believe in…

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Downtown Chicago Multifamily Market Roars Back

Kristin Harlow — Thu, 09 Jun 2022 11:45:52 +0000

By Mike Drew, Structured Development As a longtime developer of multifamily, commercial and mixed-use properties in Chicago, I can tell you we’ve never seen anything like the last few years. From the highs of the pre-pandemic multifamily construction boom to the lows of the first year of COVID-19 lockdowns — when downtown emptied out — to today, it’s been a rollercoaster ride. But the multifamily sector has ultimately proved resilient and is roaring back stronger than ever. Here’s a look back at the past three years and a glimpse of three projects we broke ground on during the pandemic: Schiller Place, Big Deahl and Harrison Row. Early pandemic exodus For the years 2019-2021, developers were expected to build 9,000 apartment units in downtown Chicago, according to Integra Realty Resources. This figure was lower than the expected 10,700 units because of rising construction costs and uncertainty around property taxes, but still strong. Average rents for downtown Class A rental communities were $3.31 per square foot, per Integra, and occupancy was a robust 94.9 percent. When the pandemic hit nine months later, it greatly slowed that activity. Gov. J.B. Pritzker issued the first stay-at-home order on March 20, 2020, followed by other…

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The New Paradigm of Chicagoland Industrial Market

Kristin Harlow — Thu, 24 Mar 2022 11:45:12 +0000

The industrial market will be forever changed by the COVID-19 pandemic. Before the pandemic, demand for industrial space was closely tied with gross domestic product (GDP), with demand rising and falling alongside the U.S. output of goods. The pandemic has accelerated an already shifting economy to an “on-demand” economy. This shift was created by technology companies fulfilling consumer demand via the immediate provisioning of goods and services, and has now led to industrial warehouse demand being more in line with consumer spending versus GDP. Consumer spending and personal income are at all-time highs, with e-commerce sales growing exponentially throughout 2020 and 2021. Companies have been leasing warehouse space at a meteoric rate, driven by the need to store goods to accommodate the demand and mitigate risk from supply chain complications that have been brought on by the pandemic. Over the past two years, millions of square feet of warehouse space in the Chicagoland area have been leased for e-commerce use to tenants such as Walmart, Wayfair, Hello Fresh, Imperfect Foods and, of course, Amazon. Additionally, as traditional brick-and-mortar retailers transition to greater online sales, they require more warehouse space for goods storage, which has led tenants such as Target, Walmart,…

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Success in 2022 Chicago Office Landscape May Boil Down to Who’s Minding the Store

Kristin Harlow — Thu, 17 Mar 2022 11:45:48 +0000

When it comes to which office properties will succeed in the coming years, success may boil down in part to who is minding the store. Like most big cities, Chicago’s office market has been tested by the pandemic, and office property owners face a far more competitive environment. Year-end 2021 office vacancy rates were nearly 18 percent in the central business district (CBD) and over 25 percent in the suburbs, or 44 percent and 35 percent higher, respectively, than two years prior, according to NAI Hiffman research. Hybrid work is here to stay, and some employers are shrinking or shifting their office footprints. When the pandemic is finally in the rearview mirror, office demand is not going to be the same as it was a couple of years ago, although we are still figuring out just what it will be. Which office properties survive and thrive in post-pandemic Chicago and nationwide will depend on many factors, including the property’s age or condition, its location and, increasingly, how well the property is programmed and run. That includes satisfying tenants in terms of everything from air quality to event assistance; meeting lenders’ environmental, social and governance (ESG) requirements and other new demands;…

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Chicago Office Market: Should I Stay or Should I Go?

Kristin Harlow — Thu, 04 Nov 2021 11:45:12 +0000

A common question Chicago office brokers are hearing from clients these days is, “When is the best time to start negotiating with my landlord?” In fact, it is also a question brokers are asking themselves, contemplating when they should advise their clients to get into the market. The truth is: 1) it’s very hard to say, and 2) it depends on the situation. Let’s explore what we do know. This is a historically tenant-favorable office market. Vacancy rates have increased from 13.8 percent to start 2021 up to 17.7 percent currently. Concessions are far over-weighted with construction allowances and free rent packages 20 to 30 percent higher than they were pre-pandemic, and landlords are being more flexible on term lengths allowing tenants three- or five-year leases despite offering full buildouts. On the other side of the coin, gross rental rates (base rent plus real estate taxes and building operating expenses) have not declined. In fact, in the last quarter they increased from $42.34 to $42.57 per square foot. The trends and market conditions surrounding concession packages and rental rates haven’t really changed in the last 12 months or so. The above touches on what the market is doing, but what…

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Condo Deconversions Will Continue in Chicagoland Area

Kristin Harlow — Thu, 28 Oct 2021 11:45:42 +0000

If we consider that 2017 was the year that deconversion sales in Chicago began in earnest, we are now four years into the cycle. I’m frequently asked my opinion of how much longer this cycle will last, and what it will look like going forward. To me, that comes down mainly to supply and demand, with an eye on change in the relevant state and city statutes governing these sales. The supply of condominiums in Chicago is still plentiful, especially condominiums that were converted from apartment buildings. While there was a bit of a condo-buying frenzy in the early part of 2021 as the world opened back up, that frenzy has dissipated. Condominiums that would typically take a couple of months to sell sold in days, and often at asking price. With that said, there was little meaningful price appreciation. The factors that hinder appreciation of these condominiums did not change: high amounts of rental units in the association; lack of amenities; and aging buildings that are either behind on maintenance or expensive to keep up. Those factors are unlikely to ever change. The current demand for multifamily properties is quite strong. Most investors sat on the sidelines in 2020,…

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Chicago Industrial: Full Speed Ahead at End of Second Quarter

Kristin Harlow — Thu, 15 Jul 2021 11:45:02 +0000

By Adam Haefner, Avison Young The Chicago industrial market continues to move at full speed at mid-year 2021, with strong tenant demand keeping vacancy around 6 percent, despite 64.7 million square feet of new construction added since 2018. At this stage in the pandemic recovery, large corporate healthcare, retail, logistics and e-commerce businesses continue to drive much of the leasing activity, which totaled 27.5 million square feet near the mid-point of 2021. Companies such as Wayfair, which is building a 1.2 million-square-foot distribution facility in the I-55 Corridor, are joining the ranks of Walmart, Target, Amazon, Home Depot and others that are expanding their industrial space in the Chicago market to keep pace with soaring demand. There are also many small to mid-sized industrial businesses that are increasing their output and expanding their space after seeing slowdowns due to the pandemic. While the industrial sector is navigating some supply chain disruption and fluctuations in construction materials costs, those headwinds are not enough to slow market activity. Given the boost in consumer and business activity from the vaccine rollout and subsequent reduction in the state’s pandemic mitigation measures, demand for industrial space should be strong for the foreseeable future. Avison Young…

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Chicago Market Experiences Surge in Retail Sales as COVID Restrictions Loosen

Kristin Harlow — Thu, 08 Jul 2021 11:45:48 +0000

By Chris Irwin, Colliers International As we begin to lower our masks, breathe fresh air and see smiles on everyone’s faces, there are strong signs that better than pre-COVID retail activity in Chicago is here. With the expanded vaccine rollout, a decrease in unemployment plus the added boost of stimulus checks, the surge in retail sales in the city and surrounding areas has been measurable. The demand for retail space increased in fourth-quarter 2020 and first-quarter 2021 significantly, with the first quarter recording a 650,000-square-foot increase in overall absorption, which pushed the trailing 12-month absorption back to positive territory — and its highest level since 2017. Increased leasing activity continued to drive new demand as net absorption totaled almost 1 million square feet in the first quarter. Vacancy in Chicago retail has flattened and currently is holding at 6.1 percent over the past year compared with a rate of 5.1 percent nationally. Leasing activity was driven by the expansion of essential retailers throughout the first quarter, similar to first-quarter activity levels registered in 2017, 2018 and 2019. However, the most important step toward recovery happened June 11 when the State of Illinois moved its Coronavirus response from Phase 4 to…

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Tenants, Landlords Analyze Future of Chicago’s Fulton Market District

Kristin Harlow — Thu, 08 Apr 2021 11:45:48 +0000

By Allen Rogoway, Cresa Chicago Over the past seven years, the Fulton Market office submarket has changed the landscape, and boundaries, of Chicago’s central business district (CBD) and what a “live-work” ecosystem can look like. Whereas the River North office submarket evolved over 30 years to become a low-cost alternative to the Loop for creative, boot-strapped companies requiring mostly small footprints, Fulton Market was developed for tech-centric, multinationals willing to pay “Trophy Tower” prices to attract and retain the very best talent. Employees didn’t mind adding a Chicago Transit Authority (CTA) transfer or 20 extra minutes to commute times each way in order to be in a neighborhood that was developed by big money yet felt authentic. Much of the architecture was preserved, and new construction was held to standards whereby the new mostly blended in with the area’s former produce, cold storage and century-old warehouses that had been converted for office use. Then old-guard companies and industries from accounting, consumer products and even law, started to set up shop in buildings that provided people with a very different workplace experience than what they were used to. Ownerships thoughtfully invested in tenant amenity spaces and retail pairings that matched with…

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The Future of Chicago’s CBD Is Slowly Coming into Focus

Kristin Harlow — Thu, 01 Apr 2021 11:45:59 +0000

By Jeff Mulder, Colliers International Chicago By now, we all know that the COVID-19 pandemic has wreaked havoc across the world, affecting life as we knew it in the most unexpected ways. Our business, the business of office space, has been hit hard as companies almost instantly deferred or canceled real estate decisions and switched to work-from-home. The average occupancy of buildings in Chicago’s central business district (CBD) is currently 8.2 percent, according to the Building Owners and Managers Association. One year in, and corporations are still trying to determine the best path forward and what that will look like. But evidence of change, and some signs of what the future will look like, are slowly coming into focus. One noteworthy and reliable data point is sublease space. Colliers research reports that in the 20-plus-year history of Chicago’s office market, vacant sublease space offerings rise and peak within two to four quarters following major financial crises like the 2002 Tech Wreck and the 2009 Great Financial Crisis. Following these trends, current sublease space offerings in Chicago’s CBD have more than doubled since March 2020. Typically in the past, tenants in the market quickly absorbed sublease spaces that were offered —…

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Missouri, Illinois Ports Collaborate to Grow Business on Inland Waterways

Kristin Harlow — Thu, 15 Oct 2020 11:45:10 +0000

By Mary Lamie, Bi-State Development The key to current and future success for four ports in Missouri and Illinois is collaboration. As ports continue to play a critical role in the global supply chain, the special working relationship between the directors of the ports in St. Louis and Kansas City is helping to keep operations flowing on the inland waterways, even in the midst of the COVID-19 pandemic. Significant investments in each port are also fueling growth at each facility. “Like many others in the freight industry, we are classified as essential. We have access to six Class I railroads, two multimodal harbors, four interstate highways and millions of square feet of warehouse space, plus manufacturing areas and developable sites,” says Dennis Wilmsmeyer, executive director of America’s Central Port (ACP), where the constant level of activity reinforces the significance of all ports as the COVID-19 pandemic continues. With its location just north of St. Louis on the Illinois bank of the Mississippi River and its many transportation and logistical advantages, ACP has attracted 80-plus commercial tenants. Its harbor operators transport more than 3 million tons of goods valued at more than $1.1 billion annually. Though the pandemic has resulted in…

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Pandemic Shines Light on Lack of Cold Storage Space

Kristin Harlow — Thu, 06 Aug 2020 11:45:29 +0000

By Brian Niven As we begin to reopen most parts of our society following the COVID-19 pandemic that devastated our country and economy earlier this year, many in the commercial real estate industry are beginning to take stock of the massive shifts it may have put into motion. While the pandemic has decimated many sectors — shuttering retail shops, leaving offices empty and setting off an exodus of urban apartment dwellers — prospects for industrial properties have remained strong. Demand for warehouses of all kinds has been soaring in recent years, largely on the back of the growing e-commerce industry, and the sidelining of brick-and-mortar stores has only strengthened those tailwinds. However, that does not mean that the sector will not face challenges in the years to come. While most of the country’s core markets have a healthy pipeline of dry warehouse development that will help meet demand from users, the same cannot be said for an increasingly essential part of our supply chain — cold storage facilities. Vacancy for cold storage was already at or near zero across the country, but the pandemic has set off a chain of events that is likely to place significant stress on our…

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Now Is the Time to Invest in Chicago’s Office Market

Kristin Harlow — Thu, 12 Mar 2020 11:45:36 +0000

There is a widely held belief that investing in the Chicago office real estate market in 2020 is potentially a bad bet. While some investors are concerned by headlines decrying the fiscal health of Illinois, the supposed overvaluing of Cook County tax assessments and softening of the Chicago market, our experience tells us those fears will create opportunities for contrarian investors willing to dig deeper. Because these misperceptions are scaring away some institutional investors, the time is ripe for continued investment in Chicago office properties to take advantage of opportunities that more cautious investors are passing up. Municipal realities At the state level, much has been written about Illinois’ fiscal health. In a report released in September 2019, government watchdog Truth in Accounting labeled Illinois a “Sinkhole State” and ranked it 49th in the nation for its financial condition. After failing to raise enough revenue by hiking taxes to fund the state’s debt, leaders from Illinois have said that massive pension reform — not tax hikes — is the way out of our current debt crisis. Consequently, office real estate investors should not be overly concerned that the state of Illinois will potentially shift the state’s tax burden onto their…

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Industrial Landlord Consolidation Means Chicago-Area Tenants Should Be Ready to Negotiate

Kristin Harlow — Thu, 05 Mar 2020 12:45:53 +0000

In December 2019, Prologis, the largest industrial landlord in the world, announced its acquisition of Liberty Property Trust, another publicly traded REIT with a large industrial portfolio of its own. This deal, valued at $12.6 billion, seems to have become the norm in recent months. Companies such as Prologis and Blackstone Group, as well as regional ownership groups, have gobbled up industrial investment opportunities whenever they can. Just 10 years ago, the industrial real estate asset class was battling high supply and low rents, due primarily to the Great Recession. But with the growth of e-commerce and omnichannel logistics, this asset class is now considered one of the best investment opportunities available. So how is this consolidation of industrial ownership impacting the Chicago-area industrial market, and what should tenants know so that they can make informed real estate decisions? Local numbers While it seems like there are just a handful of landlords controlling the marketplace, when you look at the numbers, the prognosis isn’t so bad. Nationally, no single owner controls more than 10 percent of the U.S. market. Instead, landlord dominance is more of a local concern, and typical real estate indicators continue to influence lease terms. However, there…

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Chicago CBD Office Market in the Groove, Even Property Taxes Unlikely to Bring It Down

Kristin Harlow — Thu, 17 Oct 2019 11:45:35 +0000

Despite recent concerns of an imminent market correction, the Chicago central business district (CBD) still has room to run. There are many signs of optimism in the market, including continued healthy fundamentals and a wealth of redevelopment projects injecting new life and vibrancy into various submarkets. In the second quarter, downtown Chicago wrapped up its busiest quarter for office leasing since 2016. Additionally, the downtown office vacancy rate of 11.6 percent was the lowest it had been since 2016. To top it off, Chicago is experiencing historically high annual levels of net absorption, which potentially could put upward pressure on rents, and sublease space is relatively scarce. It’s hard to find stronger evidence of a robust CBD office market. Redevelopment projects Market statistics aside, noteworthy redevelopments have Chicagoans genuinely excited as they look forward to a new crop of influential spaces that will drive the next iteration of the Chicago office market. The real estate fairy tale that has real estate aficionados entranced — not only in Chicago but nationally — is 601W Cos.’ Old Post Office project at 433 W. Van Buren. More than 1 million square feet has already been leased at the 2.8 million-square-foot space, largely thanks…

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Investors Should Take a Second Look at Opportunities in Chicagoland Multifamily

Kristin Harlow — Thu, 10 Oct 2019 11:45:38 +0000

Chicago real estate has been the subject of considerable pessimism from local and national investors due to a variety of factors. Much of this can be blamed on our unfunded pension liability, which is expected to significantly increase real estate taxes across the area in the coming years. Many institutional multifamily investors claim that their data says to avoid Chicago. Instead, they seek multifamily properties at far lower returns and cap rates in places such as Nashville, Austin and Denver. While I believe those cities offer phenomenal investments, investors across the country are missing an amazing opportunity to invest in Chicago apartment properties. Real estate taxes Everyone seems to agree that real estate taxes will rise significantly in Chicago in the coming years. Who pays real estate taxes? Homeowners, commercial landlords and some businesses. Noticeably absent from this list are apartment renters who are generally unaffected by an increase in real estate taxes. In fact, a significant rise in residential real estate taxes should create even more demand for rental apartments in the Chicagoland area as would-be homeowners shift into the rental pool. Effect of high tax rates Do Chicagoans leave the city because of high tax rates? The data…

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