Marcus & Millichap

Chicago Industrial Research Report

Chicago Metro Area, Second Half 2017

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Chicago Shoulders Surge in Construction; Investors Active in Collar Counties

Rising employment growth and consumer expenditures boost industrial demand in Chicagoland. The region's growing e-commerce sector and status as a premier logistics hub are generating strong demand for industrial space. Completions will top 10 million square feet for the third consecutive year, as roughly 15 million square feet of distribution, warehouse and manufacturing space is set for delivery this year. Another 1.7 million square feet of older space is being renovated, mainly in Cook and DuPage counties. Amazon, Mars/Wrigley, Georgia-Pacific and Uline will move into new buildings in 2017, each comprising more than 1 million square feet. Speculative construction is also on the rise with new buildings generally limited to high-demand locals, limiting the impact on vacancy. Marketwide, strong demand for new inventory will underpin a sixth year of rent gains.

Investors finding opportunities in the Chicago metro. Single-tenant warehouse and distribution assets remain the focus of many buyers at cap rates that are in the 5 to 6 percent area for well-located buildings with long lease terms to credit tenants. Investor demand for these properties outpaces available inventory, keeping prices elevated. In the city of Chicago and first-ring suburbs, older industrial properties are being targeted for larger redevelopment projects. Properties located along major thoroughfares or near transit stations are particularly desired. Buildings in transforming neighborhoods such as River West are also sought after. Institutional investors are still active with portfolio transactions accounting for a larger portion of last year's sales. Newer Class A properties in industrial parks throughout the metro will typically begin trading at cap rates in the 5 percent range. Lower taxes in the collar counties boost investor interest, especially in DuPage and Will counties.

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