Outlook. A market report for commercial real estate executives. Growth Slows. Industrial Construction Up; Pre-Leasing Steady. Investment Sales Steady

Transcription

1 UMETRO CHICAGO INDUSTRIAL MARKET AT MID-YEAR 28 Net Absorption in s of SF 2, 15, 1, 5, -5, Net Absorption of Industrial Space and Direct Vacancy Rate Trends 1998 Mid-Year 28 12% 1% 8% 6% 4% 2% Vacancy Rate Growth Slows The industrial market saw slower absorption in the 2 nd quarter of 28, with 12, SF of space absorbed during the quarter. For the first half of 28, net absorption totals 2.8 million SF, down from 6.9 million SF in the 1 st half of 27. Net absorption of Warehouse/Distribution space totaled negative 265, SF in the 2 nd quarter of 28, compared to positive 4.3 million SF during the 1 st quarter. Manufacturing space saw positive 39, SF of net absorption during the 2 nd quarter, while Flex space saw negative net absorption of 5, SF during the quarter. -1, % MY 8* Net Absorption Vacancy Rate Source: Vacancy Delta Associates analysis of CoStar data; Net Absorption Delta Associates; June 28. *1 st half net absorption annualized. Available sublease space increased to 7.3 million SF at mid-year 28, up from 4.8 million SF a year ago. Sublease space currently represents just.7% of standing inventory. We expect the industrial vacancy rate to rise 7 basis points in the next 12 months as new space delivers. Millions of SF Delivered st Half 8 Source: Source: CoStar, BLS, Delta Associates; Associates, June 12/128. Industrial Space Delivered 1998 Mid-Year BIndustrial Vacancy Edges Upwards The overall industrial vacancy rate in is 9.5% at the 2 nd quarter of 28, up from 9.1% at 1 st quarter 28 and 9.2% a year ago. The direct vacancy rate is 8.8%, up from 8.5% at 1 st quarter 28 and 8.7% a year ago. The sublease vacancy rate has increased by 2 basis points over the last year. Industrial Construction Up; Pre-Leasing Steady There is 1.4 million SF of industrial space under construction in at midyear 28, down from 12.7 million SF in the 1 st quarter 28 but up from 8.6 million SF a year ago. Space under construction is 2% pre-leased, compared with 14% a year ago. The Joliet/Will County and South I-55 Corridor submarkets are experiencing the most construction. Industrial deliveries totaled 8.6 million SF in in the 1 st half of 28, up from 7.3 million SF in the 1 st half of 27. Space delivered was 35% leased upon delivery, compared to 54% a year ago. Asking Rent ($ s/sf,nnn) $6 $5 $4 $3 $2 $1 $2.88 Average Industrial Rents 1983 Through Mid-Year 28 $4.66 $4. $4.89 $ MY 8 Source: CoStar, Delta Associates; June 28. 2BIndustrial Rents: Increasing Industrial rents increased by 2.5% in the 1 st half of 28 after increasing by 3.7% in all of 27. Overall, rents averaged $5.4/SF, NNN, at mid-year 28. Industrial rent growth should moderate in the balance of 28 as new supply outpaces demand. Investment Sales Steady Industrial investment sales volume totaled $82 million in in the 1 st half of 28, up from $713 million in the 1 st half of 27. Sales prices averaged $59/SF, down from $63/SF a year ago. We expect the economy to generate an average of 1, jobs per year over the 28-1 period. Industrial Market s central location and extensive transportation network position it to take advantage of the growing distribution market. Exports are strong as the weak dollar fuels international demand for American goods. The industrial market expansion will likely continue for the balance of 28, albeit at a decelerated pace. Vacancy will increase slightly and rent growth will ease in the coming 12 months. 1 Mid-Year 28

2 Annual Job Growth in 's * Source: BLS, BLS, Delta Delta Associates; Associates, June 12/1 28. Unemployment Rate 6% 5% 4% 3% 2% Was Phx Bos Annual Job Growth 198 April 28 Long-term Average = 32, Hou Source: Bureau of Labor Statistics; June 28. Unemployment Rates Large Metro Areas April 27 vs. April 28 DFW Den NY S. Fla *12-month job growth through April 28. Atl Chi LA Basin National Average 5.% 4.5% 4/7 4/8 METRO CHICAGO ECONOMY Chicago Economy: Decelerating Growth The economy expanded at a modest rate in the 1 st quarter of 28, as payroll employment grew by 11,6 jobs.3% over the 12 months ending April 28. Chicago s Professional and Business Services sector, which has driven area job growth in recent quarters, added just 6 jobs over the 12 months ending April 28. The unemployment rate was 5.3% in April 28, up from 4.7% in April 27. The national rate of unemployment in April 28 was 5.%. The Financial Services sector lost 4,6 jobs 1.4% over the 12 months ending April 28. Layoffs and office closings have made headlines in Metro Chicago in the aftermath of the collapse of the subprime mortgage market. Wachovia Corp. has cut 58 positions at 77 W. Wacker Dr. and is acquiring AG Edwards. GE Capital Corp. has announced that it will cut 5 jobs at 222 N. LaSalle St. in its acquisition of Merrill Lynch Capital. Bank of America Corp. has announced plans to cut 2,5 jobs in Illinois in the next 18 months following its purchase of LaSalle Bank. In addition, First Franklin closed an 81-employee office in Schaumburg. Core Industries 27 Core Industries $ (Bil) % GRP Professional, Financial and Technical Services $68 16% Manufacturing $37 8% State & Federal Government $33 7% Education & Health Services $29 6% Construction $24 5% Transportation & Warehousing $19 4% Convention & Hospitality Services $16 3% Total Core Industries: $226 49% Other $227 51% Total GRP: $453 1% Note: Subcomponents of Core Industries were redefined in June 27. Source: GMU Center for Regional Analysis; Delta Associates; June 28. Annual Job Growth 7, 6, 5, 4, 3, 2, 1, GRP = Gross Regional Product Totals may not add due to rounding Source: BLS, BLS, Delta Delta Associates; Associates, June 12/1 28. Job Growth Year Forecast = 1,/Annum Regional Manufacturing activity continues to be hurt by globalization. Metro Chicago s Manufacturing sector lost 5, jobs a 1.% loss over the 12- month period ending April 28 as the local economy continues to shift from a traditional manufacturing-based economy to a service-based economy. The Chicago Purchasing Managers Index, an indicator of the economic health of the manufacturing sector, rose to 49.1 in May; a level below 5 signals contraction in the market. The recent increase in the index suggests that despite high costs and slower consumer spending, demand for exports has buffered the manufacturing sector from weakening as much as in past economic slumps. In other industry news, Peoria-based Caterpillar has announced plans to spend an estimated $1 billion to expand capacity at five of its plants in Illinois. Its plant in Aurora is expected to retain at least 3, jobs. The Convention and Hospitality sector added 1,3 jobs, or.3%, over the 12 months ending April 28. The Alter Group, based in Skokie, Illinois, has signed a contract to buy a 3.7-acre, $7 million parcel of land next to McCormick Place, which bills itself as the largest convention center in the country. The Alter Group has plans to build a 1,5-room hotel that could cost upwards of $5 million. The International Olympic Committee has announced that Chicago is a finalist to host the 216 Summer Olympic Games, which would be a boon to the city s Hospitality sector. The other three finalists are Tokyo, Rio de Janeiro, and Madrid. The final decision will be made in October Mid-Year 28

3 Selected 1 st half 28 industrial sales: UProperty/SubmarketU USale Price/Buyer 44 Medinah Rd. $25.8 million ($81/SF) North DuPage Ind TA Associates 8999 W. Palmer St. $23.3 million ($44/SF) Centerpoint Properties 25 W Bradley Pl $21.9 million ($6/SF) City of Chicago Ind. Wrightwood Capital JV Saxony Capital LLC 951 Nevada Ave. $11.1 million ($93/SF) First Industrial Realty Trust Source: Real Capital Analytics; June 28. SUMMARY OF INDUSTRIAL MARKET INDICATORS METRO CHICAGO MARKET 25 THROUGH MID-YEAR 28 June 28 June 28 Total SF Avail. Direct Vacancy Rate Vacancy SF Under Net Absorption (SF) Rentable SF Immediately at End of: 2/ Rate Constr. or Submarket All Bldgs. 1/ All Bldgs. 3/ nd Q 8 w/ Sublet 2/ Renovation nd Q 8 1st Half 8 City of Chicago Flex/Service 12,591,545 1,599, % 1.8% 1.8% 12.7% 12.7% - 259, 273, - (239,) (239,) Manufacturing 4/ 51,669,847 6,252, % 14.% 12.% 12.1% 12.3% 129, 1,548, 1, 569, 447, (121,) Warehouse/Distribution 15,763,552 1,11, % 7.4% 5.6% 6.7% 6.9% 126,82 317, 61, 1,255, (754,) (1,63,) Total - City of Chicago 215,24,944 17,952, % 9.3% 7.4% 8.3% 8.5% 255,82 2,124, 884, 1,824, (546,) (1,963,) O'Hare Flex/Service 6,317,797 77, % 8.9% 1.1% 11.2% 11.5% - 262, (31,) (76,) (6,) (69,) Manufacturing 22,153,982 1,728, % 7.9% 6.2% 7.8% 8.5% - (66,) 1,174, 377, 155, (355,) Warehouse/Distribution 72,819,926 6,99, % 6.6% 8.8% 9.6% 1.7% 25,54 953, 695, (1,15,) 17, (338,) Total - O'Hare 11,291,75 9,426, % 7.% 8.3% 9.3% 1.3% 25,54 1,149, 1,838, (84,) 319, (762,) North Cook Flex/Service 6,611,44 1,18,11 9.7% 17.% 13.8% 15.4% 15.8% - 367, (376,) 165, (13,) (79,) Manufacturing 1,967,621 1,129, % 1.6% 11.2% 1.3% 1.3% 369,1 378, (263,) (66,) (88,) 98, Warehouse/Distribution 5/ 35,255,183 1,445, % 5.3% 4.3% 4.1% 4.2% 161,64 664, 128, 32, - 64, Total - North Cook 52,833,848 3,593, % 7.8% 6.9% 6.8% 6.9% 53,74 1,49, (511,) 419, (11,) 83, Flex/Service 2,982,56 134, % 3.1% 4.5% 4.5% 4.5% - 3, 6, (42,) 6, - Manufacturing 2,76,842 1,325,72 7.1% 8.7% 5.5% 6.6% 7.1% 139, , (322,) 562, (4,) (221,) Warehouse/Distribution 61,779,84 3,76, % 5.5% 6.2% 6.% 6.8% 471,314 (566,) 12, 859, (39,) 123, Total - 84,839,152 5,166,73 6.4% 6.2% 6.% 6.1% 6.8% 61,646 16, (196,) 1,379, (343,) (98,) Northwest Cook Flex/Service 7,783, , % 13.2% 8.2% 9.3% 1.3% - (16,) 73, 333, (8,) (86,) Manufacturing 4,33,24 614, % 18.4% 23.7% 14.2% 14.2% - 162, 3, (229,) 268, 411, Warehouse/Distribution 2,496,273 1,885,657 8.% 7.7% 9.6% 9.2% 9.2% 277,88 819, 28, 12, (143,) 82, Total - Northwest Cook 32,61,36 3,224,48 1.8% 1.6% 11.4% 9.9% 1.1% 277,88 821, 383, 116, 117, 47, South Cook Flex/Service 2,612,91 38, % 12.2% 13.7% 11.8% 11.9% - 24, (1,) (4,) 71, 5, Manufacturing 15,946,58 59,23 8.4% 8.7% 1.8% 3.7% 3.7% - 232, 14, 892, (16,) (33,) Warehouse/Distribution 44,556,965 5,346, % 12.8% 12.% 12.% 12.9% 915,643 (294,) 1,216, 184, 745, 437, Total - South Cook 63,116,455 6,245, % 11.7% 9.5% 9.9% 1.5% 915,643 (38,) 1,229, 1,36, 8, 184, Near Southwest Suburbs Flex/Service 229,663 11, % 36.3% 2.1% 4.8% 4.8% - (12,) 28, 78, (6,) (6,) Manufacturing 8,419,638 1,27, % 4.7% 9.1% 12.2% 13.1% - (134,) 22, (337,) (194,) (261,) Warehouse/Distribution 5/ 18,257,396 2,117, % 17.% 17.4% 11.6% 11.8% - (133,) (15,) 44, 256, 98, Total - Near SW Suburbs 26,96,697 3,156,78 9.% 13.% 14.5% 11.7% 12.1% - (369,) 233, 145, 56, 713, North I-55 Corridor Flex/Service 2,634 2,48 1.8% 2.9% 8.8% 1.2% 1.2% 42,726 17, (2,) (11,) 5, 15, Manufacturing 7,545, , % 24.% 1.2% 11.6% 14.9% - (267,) (633,) (483,) (16,) (16,) Warehouse/Distribution 17,75,75 973, % 4.4% 4.3% 5.5% 6.6% - (234,) 337, (158,) (336,) (212,) Total - North I-55 Corridor 25,451,69 1,851, % 1.7% 6.1% 7.3% 9.% 42,726 (484,) (298,) (652,) (437,) (33,) Suburban Lake County Flex/Service 6,167, , % 9.3% 9.9% 12.4% 12.4% - 388, 155, (43,) (56,) (155,) Manufacturing 18,76,841 1,464, % 9.9% 7.1% 8.1% 8.2% - (257,) (378,) 424, 72, (153,) Warehouse/Distribution 49,817,341 3,437, % 5.7% 5.6% 6.9% 7.3% 694, , 231, 515, 211, 176, Total - Suburban Lake Co. 74,61,316 5,666, % 7.% 6.4% 7.7% 7.9% 694,854 82, 8, 896, 227, (132,) See following page for balance of Chicago Industrial Summary 3 Mid-Year 28

4 (continued) SUMMARY OF INDUSTRIAL MARKET INDICATORS METRO CHICAGO MARKET 25 THROUGH MID-YEAR 28 June 28 June 28 Total SF Avail. Direct Vacancy Rate Vacancy SF Under Net Absorption (SF) Rentable SF Immediately at End of: 2/ Rate Constr. or Submarket All Bldgs. 1/ All Bldgs. 3/ nd Q 8 w/ Sublet 2/ Renovation nd Q 8 1st Half 8 Suburban McHenry County Flex/Service 5/ 1,655, ,71 7.% 1.9% 4.% 8.8% 8.8% - (8,) 38, - (89,) (81,) Manufacturing 8,588,953 1,889,57 9.% 4.7% 27.3% 22.% 22.8% - 36, 134, 147, (9,) 455, Warehouse/Distribution 5/ 17,451,67 1,82, 3.2% 4.4% 5.8% 6.2% 6.3% 131, , (5,) (139,) (332,) (24,) Total - Suburban McHenry Co. 27,696,248 3,117,27 4.1% 11.6% 11.4% 11.3% 11.6% 131, , 122, 8, (43,) 35, North DuPage Flex/Service 1,139, 53,533 1.% 8.8% 6.7% 4.7% 4.7% - (62,) 14, 25, - 23, Manufacturing 5,478,48 388, % 6.6% 7.6% 7.1% 9.% - 216, 272, (473,) 71, 27, Warehouse/Distribution 31,967,965 2,25,79 7.6% 7.1% 5.4% 6.9% 9.% - (58,) 348, 54, (31,) (285,) Total - North DuPage 38,585,373 2,648,29 8.3% 7.1% 5.7% 6.9% 8.9% - 96, 634, 92, 4, (235,) Central Kane and DuPage Flex/Service 5/ 2,369, , % 13.3% 1.8% 35.6% 35.6% 62,12 (17,) 45, 51, (38,) (512,) Manufacturing 8,146, ,34 9.4% 7.1% 6.1% 8.2% 8.2% - 23, 266, 72, (179,) (145,) Warehouse/Distribution 31,549,366 2,92, % 8.6% 7.7% 9.2% 11.3% 18, , 271, 838, (97,) 19, Total - Central Kane & DuPage 42,66,16 4,414, % 8.6% 7.6% 1.5% 12.1% 8, , 582, 961, (314,) (548,) North Kane/I-9 Flex/Service 5/ 3,111, , % 14.5% 12.5% 9.1% 9.2% - (128,) 151, 27, 16, 16, Manufacturing 5,745, , % 9.5% 6.7% 6.4% 6.4% - 144, 158, 16, 6, 17, Warehouse/Distribution 18,48,49 2,291, % 7.5% 7.% 12.4% 12.5% 118, , 484, 486, (91,) (35,) Total - North Kane/I-9 27,337,98 2,942, % 8.8% 7.5% 1.8% 1.8% 118, , 793, 673, 21, (227,) I-88 West Flex/Service 5/ 4,197,14 524, % 13.2% 14.2% 12.5% 12.8% 25,9 (136,) 22, (227,) 116, 15, Manufacturing 5/ 13,688,41 1,122, % 11.8% 7.5% 8.2% 8.4% - 933, (2,) 1,94, (55,) (92,) Warehouse/Distribution 43,62,863 3,357,42 6.9% 1.4% 9.% 7.7% 8.2% 1,117,381 1,425, (578,) 794, 47, 1,242, Total - I-88 West 61,487,918 5,4, % 1.9% 9.% 8.1% 8.6% 1,143,281 2,222, (558,) 1,661, 18, 1,255, West Suburbs Flex/Service 4,653, , % 17.2% 1.2% 7.4% 7.9% - (279,) 84, 325, 51, 13, Manufacturing 5/ 7,5, , % 4.1% 11.8% 8.3% 1.% - (448,) 648, (466,) (219,) 18, Warehouse/Distribution 25,546,32 1,686,56 5.3% 3.4% 5.7% 6.6% 7.7% - 273, 333, (931,) (51,) 82, Total - West Suburbs 37,25,81 2,615, % 5.3% 7.3% 7.% 8.2% - (454,) 1,65, (1,72,) (219,) 392, South I-55 Corridor Flex/Service 5/ 3,591, ,1 17.6% 1.% 6.1% 7.1% 7.1% - 44, 19, 114, 47, (5,) Manufacturing 9,41,664 92,56 7.2% 7.3% 8.4% 9.6% 1.2% 54,864 1,151, (9,) (13,) 188, (113,) Warehouse/Distribution 5/ 64,464,288 6,51, % 12.5% 9.4% 1.1% 12.2% 1,469,864 2,91, 3,565, 4,564, 663, 2,297, Total - South I-55 Corridor 77,457,52 7,668, % 11.5% 9.1% 9.9% 11.7% 1,524,728 3,286, 3,746, 4,575, 898, 2,179, Joliet/Will County Flex/Service 2,188,33 19, % 6.9% 6.3% 5.% 5.% - 1, 3, 4, 48, 65, Manufacturing 5,28,518 1,67, % 21.7% 24.7% 2.5% 2.5% - (487,) 192, (119,) 89, 219, Warehouse/Distribution 41,755,391 5,1, % 15.% 12.6% 12.% 12.5% 3,842,263 2,15, 861, 1,26, (213,) 1,26, Total - Joliet/Will County 49,152,239 6,187, % 15.6% 15.4% 12.6% 13.% 3,842,263 1,529, 1,56, 911, (76,) 1,49, Flex/Service 68,43,275 7,828, % 11.6% 1.2% 11.4% 11.7% 13,638 5, 672, 683, (5,) (738,) Manufacturing 222,495,463 21,998, % 11.5% 1.2% 9.9% 1.4% 692,296 3,86, 1,52, 2,21, 39, (463,) Warehouse/Distribution 746,27,417 61,52, % 8.1% 7.7% 8.2% 9.% 9,551,823 1,2, 8,836, 9,464, (265,) 3,986, Total - 1,37,169,155 9,88,81 9.1% 9.1% 8.4% 8.8% 9.5% 1,374,757 14,38, 11,1, 12,168, 12, 2,785, Vacancy Rate including Sublease Space 9.7% 9.5% 9.% 9.5% 1/ Includes multi-tenant, single-tenant, and owner occupied buildings. Does not include buildings under construction or buildings owned by the government 2/ Vacancy rates reported are based on immediate availability. 3/ Does not include sublet space. 4/ Inventory and 1st quarter vacancy amended per CoStar. 5/ Inventory amended per CoStar. Source: Inventory and Vacancy from analysis of CoStar data, Net Absorption computed by Delta Associates; June 28. Delta Associates, the research affiliate of Transwestern, is headquartered at: 5 Montgomery St., Suite 6, Alexandria, VA 22314; Phone: ; DeltaAssociates.com UNational Economy and Methodology Please visit Transwestern.net for: Our National Economic Explanation of our methodology UNote on data contained herein Our inventory, vacancy and absorption figures include owneroccupied and single-tenant buildings. We include these buildings to capture the entire market so that we may derive correlations between job growth and occupancy of inventory. Our reported vacancy rate is based on immediate availability. 28. All rights reserved. You may not copy nor disseminate this report. If quoted, proper attribution is required. 4 Mid-Year 28

5 BDelta Associates Delta Associates, the research affiliate of Transwestern, is a firm of experienced professionals offering various consulting and data services to the commercial real estate industry for more than 25 years. The firm s practice is organized in three related areas: 1. Valuation service for partial interests in commercial real estate assets. 2. Consulting, research and advisory services for commercial real estate projects, including market studies, market entry strategies, asset performance enhancement studies, preacquisition due diligence, and financial and fiscal impact analyses. 3. Subscription data for select metro regions for office, industrial, retail, condominium, and apartment markets. For further information about Delta Associates and to see all of our publications, please browse our web site at: DeltaAssociates.com. Headquarters Government Services Transwestern Support Group Gregory H. Leisch, CRE Craig Powell Alexander (Sandy) Paul Chief Executive 21 Wilson Blvd., Suite 2 President, TSG 5 Montgomery Street, Suite 6 Arlington, VA Montgomery Street, Suite 6 Alexandria, VA / ; Fax 73/ Alexandria, VA /836-57; Fax: 73/ Craig.Powell@DeltaAssociates.com 73/ ; Fax 73/ Greg.Leisch@DeltaAssociates.com Alexander.Paul@DeltaAssociates.com Consulting and Advisory Group Cyber Contacts David Weisel Website: DeltaAssociates.com Report Author: Chris Hitzel President, Consulting Division Report Editor: Ann Thompson 5 Montgomery Street, Suite 6 General Mailbox: Alexandria, VA info@deltaassociates.com 73/ ; Fax 73/ David.Weisel@DeltaAssociates.com Transwestern With 15 team members in major markets coast to coast, Transwestern operates through six distinct functional lines of business agency leasing, property and facility management, investment services, tenant advisory, development and research for a broad range of property types, including office, industrial, retail, healthcare and multifamily. In 27, the firm completed leasing, sales and finance transactions totaling $7.7 billion. Within that same time period, Transwestern oversaw the leasing and management of 875 properties, representing 17 million square feet leased and managed combined. Transwestern currently has over $1 billion in development projects in its pipeline. Chicago Atlanta Houston Philadelphia 2 West Madison St. Austin Los Angeles Phoenix Suite 33 Baltimore Miami Salt Lake City Chicago, IL 666 Bethesda Milwaukee San Antonio Chicago Minneapolis-St. Paul San Diego HUrobert.bagguley@transwestern.netUH Dallas New Orleans San Francisco Denver Northern Virginia Washington, DC Detroit Orange County Transwestern is published quarterly by Transwestern and its research affiliate, Delta Associates. All information is from sources deemed reliable; however, no representation is made as to the accuracy thereof. 5 Mid-Year 28