Chicago Metro Still Solid at Mid-Year

ROSEMONT, IL—A consensus has formed among local experts that the Chicago metro real estate market continues to show resilience in the face of many economic, social and technological changes.

More than 140 professionals attended IREM Chicago’s recent mid-year market review in suburban Rosemont, and during a panel moderated by Danny Nikitas, principal of Avison Young, panelists noted the industrial and multifamily sectors in particular keep growing stronger. Furthermore, office and retail properties are holding steady even as new technology decreases the amount of office space needed and undermines many brick-and-mortar stores.

The group was optimistic that Chicago’s robust and diverse economy would keep the market advancing into next year and that technology will continue to play an important role in commercial real estate.

Susan Bergdoll, vice president at Duke Realty, said the industrial market remains very robust nationally, driven by demand from companies like Amazon. “Every quarter, the vacancy rate keeps going, going down.” During 2010, the national vacancy rate for industrial assets was 10.2%. In mid-2018, the rate had sunk to less than 4%. In Midwest markets, the vacancy rate is around 7%, with some Chicago submarkets like O’Hare and DuPage County showing rates of less than 4%, and developers of industrial properties now find it challenging to secure land for new projects.

Rawly Lantz, executive vice president at Cawley Chicago, described the metropolitan Chicago office market in 2017 as “slow and steady.” The vacancy rates for suburban office properties is still around 20%, but submarkets like O’Hare and the East-West Corridor fare better at around 14%; the downtown Chicago market vacancy rate is around 12%, even with new office construction underway. He said lease renewals have been a challenge for landlords, but average rental rates keep increasing, a sign that demand remain strong.

Gail Lissner, managing director at Integra Realty Resources, tackled the multifamily market, and said in 2018 the suburban multifamily market should cap off a “really big year,” with delivery of 2,800 units. Lissner added that most of the new suburban apartment properties are in suburban downtown areas near Metra train stations, with some fringe developments also under way. In Chicago, 2017 was a record year for new multifamily properties, with 4,350 units hitting the market. She estimated 3,000 new apartments will be on the market in 2018, with many landlords offering attractive concessions to improve leasing.

Finally, Deena Zimmerman, vice president of SVN, said that despite the many stories of bankruptcies and declining in-store sales, there is no “retail apocalypse.” She believes vacancies created by the closure of big box retailers will present opportunities for landlords to help reinvent the asset class. For example, owners could convert vacant retail spaces of 40,000 to 60,000 square feet into distribution centers. “People need the brick and mortar experience,” adding that Target has plans to open 35 smaller-scale stores in the next few years.