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The purpose of the Real Estate Section is to provide
a quarterly look at Metro Chicago's Industrial and Office markets.
Industrial and Office real estate experts Colliers, Bennett and Kahnweiler,
and CB Richard Ellis, have
compiled the following data.
To obtain additional industrial and office market information on a
specific county market (and their respective economic development
organizations), click on the name of the county on the map located
above.
The City of Chicago's Department of Planning and Development offers
experts and programs specifically focused on the City of Chicago's Real Estate
Market. For more information contact Department of Planning and Development
at 312.744.CITY or visit their website at: www.ci.chi.il.us/PlanAndDevelop/.
World Business Chicago provides "point of first contact" assistance for site location needs.
For more information, please contact us at 312.553.0500.
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Chicago Metro Industrial Market
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Overview
Q2 2008 market conditions in the metropolitan industrial market were volatile, largely due to the lagging economy. On the positive side, leasing activity increased, less space was returned to the market, and speculative deliveries slowed. However, negative net absorption continued to further accumulate, and the overall vacancy rate increased.
Supply and Vacancy: The total supply of industrial property reached 121.5 million square feet (SF) in Q2, an all-time high. This is an increase of 3.8 million SF from last quarter, and up 12 million SF from a year ago (Q2 2007). The Q2 2008 vacancy rate totaled 9.38%, an increase from the Q1 total of 9.11% as well as the 8.58% rate of one year ago. Despite a growing vacancy rate, the metropolitan Chicago industrial market has not yet hit the ten-year high of 9.64%, posted in Q1 2004.
Lease and Sale Activity: Leasing activity increased in the second quarter to a total of 9.7 million SF. Year to date, leasing activity has totaled 17.9 million SF, compared to 18.4 million SF during the same period last year.
Q2 2008 sale volume totaled 3.3 million SF, bringing the year-to-date figure to 7.0 million SF. This is a 31.7% decline from the 9.2 million SF sold in the first half of 2007.
Net Absorption: Q2 2008 net absorption improved, but was negative 1.7 million SF. This brought the year-to-date total to negative 4.9 million SF, a sharp contrast to mid-year 2007 when absorption was a strong 6.2 million SF.
Construction Activity: Although Q2 construction deliveries were noticeably less than Q1 completions (4.0 million SF versus 5.0 million SF) the first half total of 9.0 million SF was nearly equal to the 8.9 million SF completed during the first half of 2007.
Speculative development continued to be the primary focus of construction deliveries in the first half of 2008. Of the 9.0 million SF built this year, 7.7 million SF (85.6%) were speculative in nature.
Industrial Market Summary
| 2008 Second Quarter Highlights |
| Market |
Total Inventory
|
Available Square
Feet |
Vacancy
Rate |
Net
Absorption |
| Central DuPage County |
83,806,464 |
8,124,443 |
9.69% |
(556,502) |
| Chicago North |
90,735,202 |
4,949,066 |
5.45% |
10,167 |
| Chicago South |
84,174,061 |
8,114,934 |
9.64% |
(93,749) |
| DeKalb County |
18,412,869 |
325,495 |
1.77% |
12,000 |
| Elgin I-90 Corridor |
27,317,368 |
3,456,826 |
12.65% |
(400,261) |
| Far South Suburbs |
42,484,232 |
2,185,111 |
5.14% |
448,244 |
| Fox Valley |
87,411,757 |
11,398,094 |
13.04% |
(468,114) |
| I-290 North |
77,649,387 |
6,390,394 |
8.23% |
(1,142,704) |
| I-290 South |
42,925,366 |
2,909,015 |
6.78% |
(853,620) |
| I-55 Corridor |
70,982,029 |
10,832,129 |
15.26% |
483,638 |
| I-80/Joliet Corridor |
63,292,579 |
12,177,606 |
19.24% |
258,671 |
| Lake County |
69,221,733 |
6,322,816 |
9.13% |
150,955 |
| McHenry County |
30,059,970 |
3,345,894 |
11.13% |
(165,199) |
| North Suburbs |
58,606,409 |
3,250,961 |
5.55% |
(14,722) |
| Northwest Suburbs |
33,466,836 |
2,625,371 |
7.84% |
259,099 |
| O'Hare |
140,247,388 |
13,199,394 |
9.41% |
(40,055) |
| South Suburbs |
99,243,692 |
10,680,639 |
10.76% |
(228,540) |
Northwest Indiana
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60,899,618 |
4,457,334 |
7.32%
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203,831
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Southeast Wisconsin
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55,945,139 |
2,924,434
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5.23%
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650,573
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| I-39 Corridor* |
15,486,739 |
530,913
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3.43%
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300,000
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| Rockford Area* |
42,766,957
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3,270,108
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7.65%
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(529,775)
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* Geographies lie outside of the standard definition of the Chicago metro area
Data and market summary compiled by Colliers, Bennett & Kahnweiler, Inc.
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Chicago Metro Office Market
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Downtown Chicago Overview
Map of Downtown Chicago Provided by CB Richard Ellis
Strong demand for office space: Tenant expansions were more common than space reductions, resulting in 552,881 square feet (SF) absorbed. While Q3 exhibited a decline in leasing activity, net absorption remained positive as a result of the high volume of transactions signed in 2007 when the market was more stable and tenants more optimistic.
Absorption was positive in the Central Loop, East Loop, and River North submarkets. A significant amount of the absorption can be attributed to occupancies at the Merchandise Mart and Block 37. Manning, Selvage & Lee relocated into 53,000 SF; The Chicago School of Professional Psychology expanded by 66,000 SF (Merchandise Mart); and CBS and Sterling Business Centers moved into 145,000 SF at the recently completed office portion of Block 37. With 300 N. LaSalle and 353 N. Clark being completed in 2009, it is projected that absorption will positively affect the Central Loop as tenants occupy the new space.
Vacancy rate continues to drop, lowest since Q3 2002: Direct office vacancy decreased for the third consecutive quarter to 10.7%, down 10 basis points from Q2 2008. Class A overall direct vacancy increased 20 basis points in Q3, the first increase since Q4 2007. Class B fell from 8.9%to 8.6%, and Class C decreased from 15.5% to 14.9%.
The sublease vacancy rate was steady at 1.2% although it is certain to increase in the near future as financial firms re-evaluate their space needs. Including sublease space, the overall vacancy rate is 12.0% and totals over 14.5 million vacant SF, a decline of almost 1 million SF since Q3 2007.
Asking rents mixed by building class: Overall, asking rental rates increased in Q3 to a gross weighted average (by class) of $33.02/SF per year. This is an increase of $0.29 from Q2 2008, and $0.89/SF from one year ago. Asking rates for Class A buildings fell $0.69/SF in Q3 to $36.54, the lowest rate since Q2 2007. Asking rates in Class B and C buildings increased $0.93/SF and $0.76/SF respectively, over the same period. Factors contributing to increased asking rates are rising real estate taxes, increased building operating expenses, and prior building sales purchased with pro forma net rents based upon return expectations from the sales.
Downtown Market Summary
| Third Quarter 2008 |
| Total Office Space (SF): |
121,519,677 |
| Avg. Ask. Class A Gross Lease (Annual per SF): |
$36.54 |
| Avg. Ask. Class B Gross Lease (Annual per SF): |
$31.40 |
| Avg. Ask. Class C Gross Lease (Annual per SF): |
$26.29 |
| Direct Available Rate: |
10.7% |
| Available Space (SF): |
13,038,459 |
| Net Absorption (SF): |
552,881
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Data and market summary compiled by CB Richard Ellis
Suburban Overview
Absorption remains negative, surpasses negative 1.6 million SF year-to-date: Demand for office space remained negative in Q3 as tenants continue to be cautious when planning for future office space requirements. Concerns about the economy have contributed to a decrease in leasing activity. Transactions that are being completed are primarily tenants who are downsizing and returning space to landlords. Tenants are hesitant to expand their workforces given the uncertainty of the economy. They are also reluctant to expand or relocate because of the increased costs of constructing and occupying office space.
Direct vacancy up for 4th consecutive quarter: Office vacancy increased in Q3 due to negative absorption and a small increase in the North Suburban submarket inventory. Vacant office space available directly from the landlord increased by 40 basis points to 17.0%, while overall vacant space, including subleases, increased by only 10 basis points, to 19.%. Diminished leasing activity combined with the arrival of new inventory is likely to continue to drive vacancy rates up in the immediate future.
Gross asking lease rates see first decrease in two years: Overall asking rental rates decreased in Q3 to $22.05/SF – the first decrease since Q3 2006 – but still remain historically high. Class A gross asking lease rates declined $0.23 to $26.42/SF, while Class B remained steady at $21.16/SF, and Class C fell to $17.58/SF, a decrease of $0.14. Rental rates decreased in every submarket with the exception of the North Suburban submarket, which showed an increase of only $0.01 to $23.19/SF.
The $0.22 decrease in the Q3 overall rate is due to a combination of negative economic factors, increased vacancy and negative absorption. As vacancy rates are expected to climb in the near future, asking rental rates are likely to continue to fall. Despite the decrease, rates remain relatively high, $0.29 higher than in Q3 2007, and $2.74 higher than Q3 2006.
New Class A space in Lake County: Construction was completed on Westlake of Conway Park in Lake Forest, adding 100,000 SF of new Class A inventory to the Lake County submarket, and over 65,000 SF of vacant space. With this completion and the rest of the 1.4 million SF of new construction that has been delivered or is scheduled to deliver by the end of the year, the likelihood of increased vacancy rates remains high.
Suburban Market Summary
| Third Quarter 2008 |
| Total Office Space (SF): |
106,592,296
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| Avg. Ask. Class A Gross Lease (Annual per SF): |
$26.42 |
| Avg. Ask. Class B Gross Lease (Annual per SF): |
$21.16 |
| Avg. Ask. Class C Gross Lease (Annual per SF): |
$17.58 |
| Available Rate: |
17.0% |
| Available Space (SF): |
18,068,223
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| Net Absorption (SF): |
(197,229)
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Data and market summary compiled by CB Richard Ellis
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