Chicago Industrial Market Report Q2 '13

View Chicago's 2Q 2013 Industrial Market Report here.

Trade Show Exhibit Maker to Move 300 Jobs to Woodridge

The village of Woodridge has landed another big employer, a trade show exhibit maker that plans to move 300 workers to a new building in the southwest suburb. Orbus Exhibit & Display Group has agreed to lease a 347,400-square-foot building in the Union Pointe business park, following restaurant equipment distributor Edward Don & Co., which moved there last year. Orbus plans to leave its current facilities in Bolingbrook and Niles, said CEO Giles Douglas, who planned to tell employees about the move today....Read full article on ChicagoRealEstateDaily.com

Chicago Industrial Market Report Q1 '13

View Chicago's 1Q 2013 Industrial Market Report here.

Chicago Industrial Real Estate Market Update 2012

In response to the weakened economy over the last several years, speculative construction in the I-55 corridor had dropped dramatically, and for the last four quarters there were no new construction deliveries.

However, in recent months that has all changed. DCT has announced a 604,000 square foot speculative distribution center located near the I-55 and Weber Road Interchange. In addition, ML Partners recently announced a 121,800 square foot speculative distribution center at I-355 and 143rd Street in Lockport, IL, which will be divisible to 17,400 square feet. In Park 355, a development by H.S.A., construction will commence this fall on Phase II, a 180,000 square foot distribution center divisible to 17,500 square feet.

Clarius Partners has started construction on a 1 million square foot facility on Youngs Road in Joliet. In addition, Clarius Partners is doing site work for a 454,000 square foot facility in Morris, IL. Both of these projects will serve large users that range from 200,000 s.f. and up. In total there is approximately 2.3 million square feet of new speculative construction that has commenced, or will be starting construction this year. All of these projects address an area of the market that is underserved, a lack of Class A space serving users over 500,000 square feet, and under 50,000 square feet.

Upon completing an in-depth analysis of the I-55 corridor sub market, which includes facilities in Bolingbrook, Romeoville, Woodridge and Lemont, IL, I have the following to report.

Focusing solely on Class A & B industrial product, there is approximately 60 million square feet with a vacancy rate of 13.4%. The interesting thing about this market is that over half is owned by investors that own more than one facility, and some of these investors own ten or more facilities within the I-55 corridor. The average size of a building in the Chicago industrial real estate market is 233,000 square feet, which is one of the reasons that the I-55 corridor is the most attractive sub market for firms pursuing state-of-the-art distribution centers.

Another key advantage of the I-55 corridor is its proximity to four intermodal centers; all located within minutes of I-55, thereby reducing drayage costs for companies using intermodal transportation.

I expect to see demand for space in the I-55 corridor to continue to be strong. When analyzing rollover risk for the Chicago industrial market (the number of tenants with leases expiring within a given year), we see that in 2013 there will be approximately 22 million square feet (or approximately 2% of the entire Chicago industrial market) of space that will have leases expiring. In 2014, there will be approximately 20 million square feet of space that will have leases expiring, and in 2015 there will be approximately 16 million square feet of space with leases expiring. Some of these tenants will renew, but many firms (particularly distribution users) will be looking for better, more efficient options in the market. If the economy continues to improve, we expect these users size requirements continue to improve.

If you have any questions about the Chicago industrial real estate market, or the I-55 corridor submarket, please contact me.

Jim Cummings
www.55industrial.com

I-55 Corridor Vacancy Rates

Vacancy rates for A class and B class buildings in the I-55 corridor sub market in Chicago where we track over 270 buildings totalling just over 60 million square feet is at 13.34% in the third quarter.

Recent activity in Chicago industrial real estate market includes three new spec buildings. DCT is has the walls going on 1160 W. Crossroads for a 600,000 square foot distribution center. ML Realty has announced that they will be putting up a 121,800sf multi tenant building at 143rd street and I-355 in Lockport at ML Realty new park, Heritage Crossings. Aryza Bakery is taking the rest Ryan Developments land in Boldt Park for a 275k sf build to suit. Right across from DCT's 600ksf spec building.

Activity has been strong on my business park, Union Pointe in Woodridge. We have seen a lot of activity for build to suits ranging from 100ksf-400ksf.

Please visit the real estate news tab for Chicago industrial real estate market information.

Chicago Industrial Real Estate Vacancy Rate Continues To Drop

In the fourth quarter of 2011 the I-55 corridor submarket vacancy rate has continued to drop quickly with another 1.1 decrease in the 9.6% vacancy rate in the third quarter. This has been an impressive drop in the rate from a year ago when the 2010 fourth quarter vacancy rate was at 11.9%. In recent months, landlords have been standing firm on asking rents and some have been pulling back on tenant allowances. Lease terms have averaged between 3 and 5 years for renewals.

Given the falling vacancy rates we are starting to see the market react. Union Pointe a new 80 acre business park by McShane in Woodridge, IL is underway with the construction of their first building, which will be a 362,500sf headquarters and distribution center for Edward Don.

Along with my partner Brian Carroll we are marketing the new business park

www.union-pointe.com

We have seen strong interest in the park particularly for users in 100,000 square foot to 600,000 square foot range. McShane is offering build to suits for lease or sale at this new park located at the Crossroads of I-355 and I-55.

In addition to Union Pointe Business Park construction of two 500,000sf speculative buildings could begin this spring in the I-55 corridor submarket. This would be the first speculative facilities of this size in the I-55 market as well as the Chicago industrial real estate market in years.

Saddle Creek To Lease In Elwood, IL

My partner Jack Cozzie and I recently completed a 400,000 square foot lease for Saddle Creek, a third party logistics firm in Elwood, IL where BNSF rail has their intermodal center. This location is less than a mile from the entrance to the BNSF intermodal resulting in significant savings in transportation costs for Saddle Creek. Read the full story on RE Journals.com.

2011 Quarterly Market Trends

The Grubb & Ellis Quarterly Market Trends are now available for the first quarter of 2011. The year started off well with a drop in the overall vacancy rate for the Chicago metro area to 11.3%, the lowest we have seen since 2009.

In the I-55 corridor submarket the vacancy has plunged 270 basis points from 11.9% to 9.2 %, the sharpest decrease in vacancy in a single quarter since the 4th quarter of 2001. The 9.2 vacancy rate is the lowest the I-55 corridor has seen since the 4th quarter of 2007.

Historically, the vacancy rate for I-55 corridor has been higher than the overall vacancy rate for the Chicago Metro area due to the large amount of speculative construction of large distribution centers. Since the recession hit, speculative development has been halted in the I-55 corridor but the demand for quality distribution centers strategically located near expressways, intermodal centers in the I-55 corridor has remained strong.

Chicago Industrial Real Estate 3rd Quarter Trends

Third quarter trends our out for the Chicago industrial market and the overall vacancy rate in Chicago dropped 20 basis point to 11.9% the lowest vacancy rate that we have seen for the entire Chicago industrial market since the 4th quarter of 2009.

The I-55 corridor vacancy rate dropped to 11.3% marking the the second consecutive quarter of declining vacancy in this submarket and the lowest vacancy rate since the 4th quarter of 2007 when the vacancy was at 9.7%. I think we will continue to see a decline in of vacancy rates as owners/investors continue to lease up property while holding off on any speculative development at this time.

To view Grubb & Ellis industrial market trends for the Chicagoland area and for the I-55 corridor, please visit www.industrialrealsetateinfo.com

SBA 504 Small Business Loans for commercial real estate

Recently the Small Business Jobs Bill was passed resulting in changes to the Small Business Administration loans. These loans are very attractive allowing financing up to 90%. Certain procedures have to be followed to qualify for these loans but if you work with a qualified SBA loan professional, this program can be very attractive to companies looking to purchase industrial real estate. Here are some highlights of the program.

**SBA 504 Program Update resulting from the recently passed Small Business Jobs Bill**

Allocates $505 Million for the continuation of SBA Fee reductions under the American Recovery and Reinvestment Act.

Maximum SBA 504 Loan Amounts – The loan maximum on the SBA portion of financing
is permanently increased to $5 Million ($5.5 Million for small manufacturers and borrowers
meeting certain Energy Efficiency Public Policy goals). This means that SBA lenders
participate in projects up to $12,500,000 under the 50/40/10 structure.

Maximum Size limit increase – Maximum Corporate tangible Net Worth increases to
$15MM and two-year average net income after taxes increases to $5MM. This change will allow
the SBA 504 loan program to become a very viable option for Middle Market companies.

For more information on SBA please visit my real estate news page at http://www.industrialrealestateinfo.com/

Chicago Industrial Real Estate Market Update

It seems like market activity is improving. In the second quarter of this year we saw a leveling out of the vacancy rate for the entire Chicago industrial real estate market and we experienced a drop of 2.7% in the vacancy rate in the I-55 corridor.

I have seen an increase in activity on my listings and word from our capital group is that financing is starting to free up . Hopefully that will translate into more qualified buyers of industrial property. The overall tone that I hear from speaking with business leaders/owners is that they are cautiously optimistic. With regards to leasing, companies are more willing commit to longer terms versus a year ago when the average industrial lease renewal was one year and new industrial leases were averaging 2-3 years.

The Grubb & Ellis Chicago Industrial Market Trends will be out soon for the third quarter. You can always see current and past market reports on my real estate news page at http://www.industrialrealestateinfo.com/.

FASB's Changes For Lease Accounting

Here are two great articles written by Grubb & Ellis Corporate Finance group regarding FASB’s impact on commercial real estate leases. The proposed accounting changes would recognize leasing as a form of financing, eliminating operating leases, and placing all leased assets on the lessees’ balance sheets. You can read the two articles by visiting my industrial real estate news page located here.

M & E Cold Storage Sells Bolingbrook Facility to Supreme Lobster

Grubb & Ellis is pleased to have assisted M & E Cold Storage in the sale of the facility located at 279 Marquette Street, Bolingbrook, IL. Supreme Lobster purchased the 101,088 sf state-of- the-art freezer/cooler building which features, 35’ceiling height, one drive-in-door, and 11 exterior docks. Jim Cummings, Grubb & Ellis Company represented the seller, M & E Cold Storage.

Undisclosed Tenant to Lease 250,000 sf in Aurora

Jim Cummings, Grubb & Ellis Company, represented an undisclosed tenant in the lease of 250,000 sf, at the property located at 901 Biltner Rd., Aurora, owned by Liberty Property Trust.

Siwin Corp. Purchases Channahon Building

Grubb & Ellis is pleased to have assisted in the sale of the property located at 23315 S. Youngs Rd., Channahon, IL. Siwin Corporation purchased the industrial facility featuring convenient freeway & rail access, 24’ ceiling height, 10 docks, and 2 drive-in-doors. Jim Cummings, Grubb & Ellis Company, represented the seller, Smurfit Corporation.

Industrial Real Estate Construction Costs Continue To Decline

Below is an interesting article from Turner Construction about the continuing decline for commercial real estate construction costs. This trend will certainly help the build to suit market. Currently user are looking very hard at existing industrial properties versus build because they can purchase for less than what they can build for. In the Chicago Industrial real estate market, there have been a few build to suit deals finalized but activity in this sector of industrial real estate has dropped dramatically along with speculative development.

For more market information regarding the Chicago Industrial Real Estate Market go to:

http://industrialrealestateinfo.com



Construction Costs Are Forecasted to Decline Further in First Quarter of 2010

Market pressures maintain downward influence on construction costs



Turner Construction Company announced that the First Quarter 2010 Turner Building Cost Index, which measures non-residential building construction costs in the United States, has decreased by 0.5% from the Fourth Quarter 2009 and decreased 7.74% from the First Quarter 2009. Construction costs have decreased by 13.06 % since their peak at the end of 2008. The Turner Building Cost Index value for First Quarter 2010 is 799.



Karl F. Almstead, the Turner vice president responsible for the Turner Building Cost Index said, “The rate of decline in construction costs is not as dramatic as it was in 2009. The reduced volume of work remains the driving force behind the market’s downward pressure on costs in the non-residential building construction sector.”



“While there are signs of recovery in the economy, the construction industry trails the broader economy due to the time required for project planning and design. As the economic recovery strengthens, increased activity in project planning will provide an indication that the rebound in the construction industry is underway,” said Almstead. Approximately 90% of Turner’s business is performed under contract arrangements where Turner provides extensive preconstruction planning services before the contract price is fixed and before construction starts. By providing preconstruction services and utilizing enhanced procurement strategies, Turner effectively manages the market risks associated with cost-related issues.



Turner has prepared the construction cost forecast for more than 80 years. Used widely by the construction industry and Federal and State governments, the building costs and price trends tracked by The Turner Building Cost Index may or may not reflect regional conditions in any given quarter. The Cost Index is determined by several factors considered on a nationwide basis, including labor rates and productivity, material prices and the competitive condition of the marketplace. This index does not necessarily conform to other published indices because others do not generally take all of these factors into account.

Global Supply Chain

Evolution of the Global Supply Chain, an article written by Tim Feemster, Senior Vice President & Director of Global Logistics at Grubb & Ellis detailing the trends in the logistics industry, as well as some opportunities to reduce overall logistics costs during these difficult economic times.

Chicago Industrial Real Estate Market Activity

We are starting to see market activity pick up in Chicago. More industrial real estate users are in the market and existing industrial tenants are more willing to negotiate longer terms leases than they were a year ago.

Tenants have taken advantage of weak market conditions for landlords locking in very aggressive rental rates and or free rent offered by landlords. Grubb & Ellis will be publishing our quarterly market trends for the Chicago industrial real estate market soon.

A great resource for industrial real estate market information for Chicago and the United States can be found at industrialrealestateinfo.com

Economic Forecast For Commercial Real Estate

Bob Bach, Chief Economist at Grubb & Ellis, just started his own Building Knowledge blog sharing his thoughts on the economic outlook and how it relates to the commercial real estate market.

Lease Renegotiation From Your Landlord’s Perspective – Improving Chances of Reducing Leasing Costs

During these difficult economic times there is an excellent opportunity for firms leasing industrial space to reduce their occupancy costs in the near and long term.

In the Chicago industrial real estate market where I specialize, there is an 11.4% vacancy rate for the Chicago metropolitan area for the first quarter of 2009. We are experiencing the highest vacancy rates in years, and this trend will probably not improve until later this year, or some time in 2010. This trend of increasing vacancy rates for industrial properties is playing out in virtually all major industrial real estate markets in the U.S. and North America.

If you have two years of term or less left on your lease, this is an excellent opportunity to approach your landlord and competing properties in the area to discuss how you can lower your leasing costs. You may wonder why a landlord would want to talk to you about reducing their income stream from your lease, especially in these difficult economic times, so let’s look at this from the perspective of a landlord and the industrial investment sales market to better understand.

Industrial investment properties owned by a landlord who does not occupy any of the space are valued differently than property sold to an end user who will occupy the property for their own operations. The income stream and remaining term left on the lease(s) are key factors in determining the value of industrial investment real estate.

Industrial real estate investment markets use capitalization rates to value properties. The basic formula is I/R=V, referred to as IRV. This is income (the net rent your landlord receives from you, not including money you pay for taxes or common area maintenance fees), divided by the sales price which gives you a capitalization rate. For example, if you had a property that had net rent income stream of $100,000 annually and you sold the property for $1,000,000 your capitalization rate would be 10%.

Industrial real estate investors apply a capitalization rate to determine what they will pay for a property. If a tenant is willing to extend their lease in exchange for a lower rental rate, your landlord could improve their capitalization rate and get a better sales price for their investment.

The industrial investment market is hurting so capitalization rates are climbing. Many landlords are sitting on the sidelines hoping to sell their properties in a couple of years when the markets recover. If they currently have a tenant(s) with a couple of years of term left on their lease, and they can extend them for example, for five years, they will have an investment property with five years of term left on the lease(s), putting themselves in a excellent position to sell when the markets recover.


A second area that landlords consider is carrying costs and tenant improvements in the event that you move out when your lease expires. Carrying costs are the expenses while the space is vacant. Currently many landlords are projecting a years worth of carrying costs for vacancy. Tenant improvements and free rent will likely be incurred by your landlord to attract a new tenant for your space. If a landlord can avoid this costly risk by giving you a better leasing rate and extending your term, they will be much better off.

Another important issue for landlords is financing. Maintaining a strong income stream is critical to procure financing. If they can mitigate the risk of your space going vacant, this puts them in a better position with their lenders.

Finally, we need to look at the current leasing market. Landlords are being very creative by offering free rent and other incentives to lure tenants away from their existing property prior to their lease expiration. It is crucial to use competing buildings for additional leverage when renegotiating with your landlord.

Using a broker who specializes in industrial real estate in a particular market enhances your chances of reducing your short term leasing costs. Your broker tracks the market on a daily basis monitoring current lease deals/investment sales activity, and understands your landlord’s situation in order to give you a clear and concise scenario to begin your negotiations. Your broker’s fees are paid by the landlord (who in many cases will have their own local broker representing them).

If you have any questions, or if I can be of any assistance, please contact me. You can also visit my website to get local market reports for industrial real estate.

(Original article, by Jim Cummings, can be viewed on ezinearticles.com)