CHICAGO—As people in the commercial real estate look ahead to 2015, those in the industrial sector seem to be feeling especially optimistic. All of the signs point to a year of more robust demand, investment and construction. However, the shadow of the recession remains, experts say, and developers will remain at least somewhat cautious so they can avoid any chance of overbuilding, a problem all too common in the run-up to the economic collapse.
“I think developers are being wise and prudent,” Erik Foster, a Chicago-based Avison Young principal and the practice leader of the firm's national industrial capital markets team, tells GlobeSt.com. “They are going to make bets where it makes sense.”
That's one of the reasons that demand will continue to outpace supply of assets coming to market, he adds. And while the market has seen a return of speculative construction in many of the major and secondary markets, it has not filled the void quickly enough from the leasing perspective.
Rents are still increasing across the nation in both the A and B sectors, he says, proof that the industrial market has yet to hit its peak. Even in areas such as Southern California, where a recovery took hold much earlier than many other parts of the nation, the industrial market is still not back to the peak seen prior to 2008.
In addition to sustained rental increases in 2015, Foster says there could be even more cap rate compression. Rates now stand in the high sixes, he says, and in the last quarter eclipsed the rates seen in 2007. “I don't know how much more aggressive cap rates can get, but this market has surprised us all.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
