Spec Warehouse construction on the rise

In Chicago, strong absorption and occupancy and a shortage of top-tier industrial space is fueling a rapid increase in spec construction, said Scott Marshall, executive managing director for CBRE's Industrial Services, Americas, in presenting the company's 3Q 2013 U.S. Industrial Marketview. Of the 5.5 million square feet under construction in the market, almost half broke ground in the third quarter. 

Q3 Industrial Property Improving

Let's start with a 8.3% vacancy rate, which is a great number on a national basis and on the other side occupancy rates are up by 1.6% on a year over year basis. The industrial market is fast approaching the pre recession levels overall and in some factors has already surpassed it.  Even better is the fact that momentum is still positive with 70% of national markets showing increases, indicating a widespread improvement.  Chicago rents are up 3.2% over last year which is a good sign for owners and owners are not as generous on the lease give aways that they once were.  While improving, rates are one of the areas that have not yet reached their pre recession highs.

Buildings in the 100K SQ FT and below that were hit hard in the recession are showing a remarkable come back now and are the fastest growing segment of the industrial market.  Even the CoStar category of industrial building- old and small (40KSF and below) are finally showing improvement.

Gloom and Doomers predicted a collapse of the commercial real estate market. Why didn't it happen?

There is an interesting article in Fortune Magazine explaining why the commercial market didn't totally melt down to the extent the residential market did.  To quickly summarize:

1. While Commercial real estate was overbuilt it was not to the point the housing market was.  In fact until 2005 residential developments used areas that customarily would have been used for commercial development

2. Many owners of commercial properties still had income in the form of rent payments from tenants unlike home owners who lost their income when they lost their jobs. This allowed many to at least limp along and hold out until better times arrived.

3. Banks renegotiated loans and rolled balloon payments further down the road to allow the market to recover.  Of course there were foreclosures, but there were also third party sources with money to spend, and were able to scoop up income producing properties at bargain prices.

This is not to say that the commercial real estate market did not have its problems, values dropped on average of 40% and are still recovering.  There were foreclosures and a lot financial pain, but a complete meltdown as predicted NOPE.

Here is a link to the article:

http://finance.fortune.cnn.com/2013/09/23/commercial-real-estate-hilton/

News Release from CoStar indicates a pick up in nonresidential construction

A new report by Fitch Ratings predicts that the pace of new U.S. nonresidential construction will likely pick up headed into 2014, bolstering forecasts by CoStar Group economists during midyear economic reviews who expect modest rises in new supply for some commercial property segments.

Lombard Chamber Golf Outing

A little hot, but what a great day.  Another successful golf outing by the Lombard Chamber.

Retailers Joining in on the Recovery

Recent analysis by RBC Capital Markets shows  demand from retailers, as evidenced by planned store openings, continues to grow.  At the same time plans for new supply, either among regional malls or community centers, remains subdued with little uptick in planned deliveries.   National tenants, especially franchises, continue to scoop up vacancy among spaces of 5,000 square feet and smaller. At the same time, large box users are struggling to find sufficient space to satisfy planned store openings, RBC noted. It is  anticipated that vacancy rates and asking rents will continue to improve based on this information.

You thought you had the office market all figured out

There have been a lot of articles written about the smaller office of the future, perhaps getting as small as 100SF/person.  Gen Y and technology all playing a role and the recent trends in office leasing weighing in as well, all giving credence to the small office.  Then I read an article that said, wait a minute, this may be the result of where we are in the economic recovery.  Small businesses tend to downsize faster than mid and large size companies.  They also are the first to start adding jobs.  So small businesses are leasing space again, under 25,000SF, to suit their needs.  The big guys should weigh in later in the recovery and perhaps move that office size to the larger size.  Interesting to see what will happen here. You have to believe that with technology eliminating the square footage for housing servers and paper files that the office footprint will still be somewhat smaller.