NGKF Says Chicago Market Shows Resilience

CHICAGO—The state of Illinois faces a number of economic challenges, including the inability of its politicians to resolve the unfunded pensions issue, and a continuing weakness in the Chicago metropolitan area’s job market. Nevertheless, both the office and industrial markets in commercial real estate showed modest strength in the second quarter, according to research by Newmark Grubb Knight Frank. The office market, for example, “recorded its fifth consecutive quarter of positive net occupancy gains as vacancy fell to 18.3%,” the firm found. Furthermore, the area’s “industrial market saw 1.5-million-square-feet absorbed in the second quarter of 2013,” however, this was “less than half of the space absorbed the previous quarter.”  

“Both the office and industrial sectors experienced positive net absorption during the second quarter, which underscores the city’s continued world-class appeal,” says Michael Sheinkop, executive vice president and regional managing director. “The improvement seen in the second quarter bodes well for the region in the short term; however, owners and users of real estate are beginning to factor in possible effects of state tax hikes set to commence in 2014, unless local politicians can soon reach a solution to Illinois’ roughly $100 billion unfunded pension liability. At the very least, this hurdle is expected to curb speculative construction and add complexity to underwriting strategies, impacting capital markets activity.”