A look back / A look forward

2019 was a good year for CCRB.  We worked with a lot of clients whose leases were expiring and needed assistance renegotiating their leases or needed more space to accommodate their growing businesses, which is always great news.  The year provided us with a good mix of industrial, retail and office transactions for various types of businesses. In other words, business was well diversified.

Since we are nearly through the first quarter of 2020 we are optimistic, from what we have experienced so far, that this year will prove to be just as busy.  It will definitely prove to be a bit more challenging given the unknown long term effect both the Corona virus and the upcoming election will have on business.  We have faced challenges before, 2009 was not exactly a banner year for real estate, and we have not only weathered it but flourished. We expect to do the same for the rest of 2020.

FIRST HALF-NEW BUSINESS-NEW FRIENDS

Here we are just past the half way mark of 2019.  So far it has been a pretty good year, both for new business and for the new friends made through the St. Charles Chamber of Commerce.  The B2B group that we have been a part of since its inception has proven to be a great resource.  Jim DiCiaula has done a phenomenal job of bringing together a group of businesses that provide support, guidance and even referrals to one another. We are happy to be a part of the Chamber and the B2B group.  We are looking forward to a strong second half.  The markets remain good and we look forward to helping more companies find that perfect location where they can become even more successful. 

Thanks for a successful year

2018 is pretty much in the books.  While it has been a challenging year it has also been a successful one. Thanks to all our clients and friends, both new and old for the support you have provided us this year.   We look forward to working with you in 2019 and beyond.

Settling In

It has now been 6 months since we have moved to Geneva and things have moved along well.  We have decided to get back to our original business plan and focus on the buy and leasing side of office, industrial and retail and not take any listings.  At the present time we are just getting our feet wet with the St. Charles Chamber of Commerce and it would appear that this will be a great group to become more involved with.  Our time spent with the Lombard Area Chamber of Commerce was fantastic and we are hoping the same will be true with St. Charles.  Business remains strong as it has been over the last several years and we are confident that this will be as good a year as last.

Serving Chicagoland from a new location

Chicago Commercial Realty Brokerage (CCRB) has moved our office to Geneva, IL. While it may be a little further west we nonetheless service the same areas that we did before- Chicago and suburbs.  Our core value of placing our clients' needs first remains with us no matter where we may have our physical office.  We look forward to continuing to serve you.

Suburban Office Space

I read that vacancy in suburban office buildings have ticked up in the recent period.  Now at a bit over 19% which is up from about 18.5% it is still much better than the 25% it was at around 2010. Even with the not so good news owners still have felt confident enough to raise rates by about 2%.  Our experience in representing tenants has been that there are still aggressive deals to be made with property owners despite rates being a bit higher.  We also take note that many suburban office buildings that were in need of a makeover have indeed either undergone one, are in the process, or are planning that makeover in the very near future.  It's reassuring to know that office building owners have the capital to make these improvements. At the end of the year and so far this year we have had the good fortune of working with  a number of healthcare industry related businesses.  That industry seems to be participating well in this healthy economy.  Thanks for a great 2016 and here's hoping 2017 will continue strong.

Amazon Gets Physical

 I came across a very interesting article by Stephane Kuelian a retail marketing guru.  Below is a summary of why it makes sense for Amazon to establish a brick and mortar presence.

 

"From a strategic standpoint, physical stores are a powerful tool to increase Amazon global

revenues. Here are 9 reasons why Amazon gets physical.

1 – Physical bookstores will help Amazon attract bigger-name authors. What other

publishers can offer that Amazon cannot is coveted placement in physical bookstores.

Those tables you see in a bookstore when you first enter are hot properties in the world of

book marketing. And Amazon can’t compete with that, until it gets its own bookstores.

2 – One of Amazon’s secrets to customer service is that it accepts returns, no questions

asked. Physical stores would make it easy for people to return products.

3 – Amazon physical stores will be massive gateway drug products dealers. The Amazon

devices are super compelling to anyone who tries one. The trouble is, there’s no way to try

them unless you buy them. Retail stores will help. Each Amazon retail store will be much

more than just a gateway drug to Amazon’s products. It will be a gateway drug where

people will buy gateway drug products like the Echo.

4 – Retail locations will help Amazon win on delivery. Retail stores could double as product

pickup locations, distribution warehouses and, eventually, drone airports from which

products are flown to nearby homes and businesses.

5 – It is an opportunity to set-up “outlet corners“. Stores could serve as “outlet” stores to

sell returned merchandise, saving Amazon millions

6 – It is an opportunity to attract new customers. The majority of all retail sales still happen

in physical stores. Those real-world sales are Amazon’s growth opportunity.

7 – It is an opportunity to enrich customers database. One way to get new customers is to

get their credit card information and other personal details. Amazon can do that by

offering killer deals in physical stores. Once Amazon has someone’s credit card, it will be

able to remind that person later that buying more stuff is just a one-click deal now.

8 – Physical Amazon stores can encourage and facilitate showrooming. Another way

Amazon eviscerates traditional retailers is via the practice of showrooming. That’s where

you go to a brick-and-mortar store and find the product you want but then buy it on

Amazon – sometimes standing right there in the store, using Amazon’s mobile app. Once

friendly salespeople from Amazon help you find,install and use the app, you will be able to showroom not only in an Amazon retail store but you can also continue showrooming in other stores.

9 – A retail location acts as a sneaky reminder that Amazon can solve every shopping

issue. An Amazon store in the mall reminds everyone that Amazon.com is the place where

people can find anything and have it wrapped and delivered. Even if shoppers don’t enter

the store, just seeing the store is a reminder that Amazon could be the solution to

any shopping problems.

Let’s wrap it up. Amazon brick and mortar stores can be considered as the gateway to the

“everything store”. They make it easier for the brand to attract new customers and

make them loyal to the brand’s compelling products and services. What every store will make

a day as a turnover does not really matter."

Who needs a commercial real estate broker

Over the course of my career I have heard the question asked 'Who needs a commercial broker when I can do this myself?'

Well, you can do it yourself, just as you can repair you own PCs, fix your own HVAC system, or rewire your office.  You can do it, but do you have the time and knowledge to do it correctly?

Back in 2008, 2009 when you could tour a space and take your time deciding how you want to approach the owner, or maybe just look at another 20 or 30 spaces that were vacant, you could certainly do that. You knew when you were good and ready you could go back and make an offer and see how it went.  If it didn't work out, you could move on to another one, there was a never ending supply of like spaces.  Learn as you go was possible.

Fast forward to today. The market has turned.  You no longer have time to experiment. The industrial vacancy rate is at a 14 year low, property moves quickly.  You don't have the time to experiment. In todays market you have to find space quickly (or someone else will) and respond with a meaningful competitive offer.

A commercial real estate broker knows  how the market is reacting.  They can find a space quickly using the search engines that are not readily available to the public. They can sort through properties and remove ones that don't fit saving you time and allowing you to focus only the ones that work for you. That brings us to the Letter of Intent (LOI). Once the property is identified as a possible fit an LOI can be submitted quickly and effectively.  A broker knows that while the market is tight there are still deals that can be made that will save you money.  You no longer have the time for endless negotiations, since there very well may be another purchaser, lessee ready to scoop up the space you want. One other point for lessees- a relationship is established between the lessor and the lessee that will be ongoing for a number of years.  Negotiations can be tense and contentious  so why not allow the broker to absorb those bad vibes allowing you to establish a much friendlier relationship.

Upbeat Office Outlook

I had the opportunity to listen to a webinar conducted by CoStar reviewing the outlook for the office segment in commercial real estate.  It was good to note that in general it was very upbeat. Vacancies dropping in all major markets over the 2014 year end numbers.  Chicago was a bit above the national vacancy rate of 10.8% coming in around the 13% range but still improving from 2014.  The panel brought up an interesting point in their analysis.  Businesses will lease quality space in a great location over merely a less expensive rent.  In other words, just because an asking rent is low doesn't automatically mean the building will lease up.  Newer buildings have lower vacancy rates and higher rents than their older counterparts.  It makes sense, since the average office footprint is shrinking companies can seek out better but smaller square footage and still keep their rental budget the same.  The CoStar panel went on to say that 2016 is positioned to be another good year for the office segment and rent growth will continue but here in Chicago at a moderate pace.

Industrial Developers in a Sweet Spot

CHICAGO—E-commerce and its likely impacts on the industry was on the minds of many at BMO Capital Markets’ 10th Annual North American Real Estate Conference, held Monday and yesterday in Chicago. But the overall mood was one of optimism. As reported in GlobeSt.com, even bricks-and-mortar retailers were upbeat, saying that the ability to buy products online was, besides convenient, another way for consumers and outlet stores to connect. And industrial developers were also buoyant about the possibilities provided by e-commerce.
Speaking at a Monday afternoon session on the future of warehousing and about some of his company’s latest projects, Marshall Loeb, president and chief operating officer of EastGroup Properties said “almost every tenant has some component of e-commerce in their space.” And the need for distribution facilities should continue to grow, as companies like Amazon are going to complement their massive distribution centers with smaller fulfillment facilities located closer and closer to urban cores to handle those last few miles of delivery (Brian J. Rogal)

Q2 Office Leases

CHICAGO—The American economy continues to expand and the national office market grew along with it in the second quarter, according to a new report from JLL. The Chicago-based firm found that leasing activity increased from 54 million square feet in the first quarter to 64 million square feet in the second, an uptick of 17%. In addition, 40% of second quarter office transactions of more than 20,000 square feet were occupier expansions. This was the fourth consecutive quarter that saw expansions in 40% to 50% of such leases.

New Life for Smaller Warehouses

Recently there has been a number of announcements that smaller warehouses have once again found use.  Of course the new variety of 50,000SF warehouse has all the amenities their big brother 500,000SF has- 35' ceilings etc. What is interesting is the way e-commerce businesses have brought this product back.  The Christmas debacle of a few years ago, (remember all those disappointed kids not getting their toys on time?) has led to some changes in distribution.  E-commerce businesses are taking note of the fact that when a consumer is ordering a product on line, they also want it as soon as possible-next day.  To accomplish that, it is obvious that the product needs to be located within a short distance to the end user.  Enter smaller strategically  located warehouses.  It makes sense.

According to CoStar: 2015 Could Be the Year Omni-Channel Retailing Gives a Boost to Landlords

Unconfirmed reports emerged earlier this week linking Amazon.com and RadioShack Corp. in talks over Amazon taking over a chunk of Radio Shack's mall-based stores as the debt-straddled electronics retailer prepares for an expected bankruptcy reorganization. 

However, whether or not such a deal materializes is immaterial. The fact is, sooner or later, Amazon, Google and several other online retailer will likely become much larger players in brick and mortar retail space.

The omni-channel phenomenon is becoming increasingly prevalent among retailers and is already starting to create new stores and bringing in new customers, as well as forcing retailers to freshen up their store offerings and space. This in turn, is bringing shoppers back in the door with their phones in hand. 

To be successful retailers, we must embrace omni-channel. Complete transparency and real-time information of inventory in the store and warehouse is essential and must be seamless to the customer,” Mathrani said. “Removing barriers to buying spurs customers to purchase more.” 

Regardless of a potential Amazon / RadioShack deal, Amazon is already well on its way to a brick and mortar presence. At the end of 2014, the online retailer had already opened up 15 'sortation centers' (think big box store) across the country, Amazon CFO and senior vice president Tom Szkutak reported. 

Zappos, which began as an online reseller of footwear, recently opened its first-ever store, a 20,000-square-foot shop in Las Vegas. The store offers shoppers the same technology as its website, while offering the added dimension of actual goods.

“To these retailers and many others, the physical store is about advertising a business in a way not possible online. The store allows them not only to sell products but also sell their brand,” the GGP CEO said. “They have all come to the conclusion that they need to have a brick-and-mortar presence to be profitable. Online is an incubator for brick-and-mortar. And they do this at the hub centers and urban retail.” 

Suburban Chicago Office Vacancy Rate Drops

22.6% office vacancy rate for suburban Chicago in the 4th quarter is down from 23.4% in the previous quarter.   More locally, the western section of the east west corridor (I88) remains among the highest in the Chicagoland submarket weighing in at 26.1%. While that rate still seems high keep in mind that this is the lowest level in more than 6 years, showing a long overdue recovery from the great recession.   How much office space was leased last year? How about 1,643,439SF which is the
highest amount since 2005.

They say "The trend is your friend" hopefully in 2015 that will prove to be a very cozy relationship.

This is a good summary of the Chicagoland industrial market

Market Trend: Chicago Industrial Deliveries, Construction and Inventory

Dec 10, 2014 - CoStar News

During the third quarter 2014, two buildings totaling 695,600 square feet were completed in the Chicago market area. This compares to seven buildings totaling 1,783,149 square feet that were completed in the second quarter 2014. 

There was 14,716,059 square feet of Industrial space under construction at the end of the third quarter 2014. 

Some of the notable 2014 deliveries include: Pinnacle XV, an 898,560-square-foot facility that delivered in first quarter 2014 and is now 100% occupied, and CenterPoint Intermodal, a 485,476-square-foot building that delivered in second quarter 2014 and is now vacant. 

The largest projects underway at the end of third quarter 2014 were RidgePort Logistics Center - Building 1, a 1,700,000-square-foot building with 100% of its space pre-leased, and Kenosha Enterprise Building 1, a 1,015,740-square-foot facility that is 100% pre-leased. 

Total Industrial inventory in the Chicago market area amounted to 1,147,964,747 square feet in 22,435 buildings as of the end of the third quarter 2014. The Flex sector consisted of 74,760,397 square feet in 2,232 projects. The Warehouse sector consisted of 1,073,204,350 square feet in 20,203 buildings. Within the Industrial market there were 4,012 owner-occupied buildings accounting for 283,830,573 square feet of Industrial space. 

This trend is compared to U.S. National Industrial deliveries and construction, which saw 206 buildings totaling 30.84 million square feet complete construction, with an additional 148.9 million square feet of industrial space still under construction at the end of the third quarter. 6100 Garfield Ave is a 620,000-square-foot facility that delivered this quarter in the Los Angeles market, while the 1.7 million-square-foot RidgePort Logistics Center in the Chicago market is still under way. Total industrial inventory in the U.S. market totaled almost 21.08 billion square feet in more than 621,000 industrial buildings at the end of Q3 2014, including almost 71,200 owner-occupied properties.

1280 Miner St. Des Plaines, Offered for Sale or Lease

The commercial real estate market is always changing.  Earlier this year, we reviewed the CCRB business plan taking a good look at taking listings.  We developed some critical requirements that a listing would have to meet before we accepted it.  The last thing we wanted to do was take a listing just to take a listing.  1280 Miner St. in DesPlaines met all the requirements and we are very excited about helping the owner realize his long term investment is this property. The free standing retail/office building is now listed on on CoStar, LoopNet and other commercial property listing services. We will always remain primarily a tenant and buyer firm but will now augment that service with listings that make sense.

Interesting Statistics

Often people don't realize how local commercial real estate can be.  Residential property, everyone knows can vary from neighborhood to neighborhood.  Here is a quick example of just how much variance there can be in the office leasing market just in the western suburbs.  Looking at North Dupage County vs. the East West Corridor which is adjacent to but covering an area further southwest of north Dupage.  So take a look at the graphs for this perspective. (GOLD=North DuPage Blue=EW Corridor)

VACANCY RATE

ASKING RENTS

MONTHS ON THE MARKET

Despite the wide variance in both the vacancy rate and the months on market, asking rents are very comparable.  Another reason to consult with a commercial broker who knows the market and provide accurate and timely advice.

Pricing Momentum Continues to Build for Commercial Real Estate

According to Sources at CoStar:

This month's CoStar Commercial Repeat Sale Indices (CCRSI) provides more evidence of two broad trends in the commercial real estate investment market: the continued strong demand for top quality institutional-grade assets by big investors, and widening investor demand for mid- and lower-quality commercial property as the pricing recovery extended to smaller markets and secondary property types.

Based on an analysis of 1,028 repeat sales in February 2014 and more than 125,000 repeat sales since 1996, the CCRSI found commercial real estate prices registered broad gains during that month. The two broadest measures of aggregate pricing for commercial properties within the CCRSI-the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index-gained 1.1% and 1.7%, both reached double-digit growth over the previous 12-month period.

The value-weighted U.S. Composite Index, which is more heavily influenced by high-value property sales that have seen prices skyrocket over the last two years, has risen to levels not seen since early 2008, reaching to within 5% of its pre-recession peak.

Meanwhile, the equal-weighted U.S. Composite Index, which is more heavily influenced by the more-numerous lower-value trades, remained 22.3% below its prior peak. However, pricing for lower-end properties appears to be gaining momentum. The index made its strongest annual gain in February 2014 since the current recovery began, advancing by 15.7% over the last 12 months as investors continued to expand their buying activity in non-prime markets.

The momentum shift to lower quality and smaller properties also appeared in the recent growth of the General Commercial segment, which grew by a similar 15.7% over the previous year, while its counterpart, the Investment Grade Index, advanced by an equally strong 15% over the same period.

In reporting on commercial property pricing trends, CoStar's CCRSI made note of the continued positive net absorption across the three major property types - office, retail and industrial - which totaled 378.2 million square feet, a 15.3% increase from the prior 12-month period. Consistent with recent pricing trends, net absorption within the General Commercial segment rose 48% during the same period, compared with a 5% annual gain for the same period in the Investment Grade segment.

In keeping with the pattern set in previous years, the number of properties trading hands over the first three months of year is typically one-third lower than year-end sale volume. However, despite the slowdown, the CCRSI noted that transaction activity through February 2014 suggests that the year as a whole will be very active for commercial real estate investment. Having racked up a composite pair volume of nearly $10 billion through the first two months of the year, 2014 has already exceeded first quarter 2013

Industrial Space Nearing Record Highs

Demand for Industrial Space Projected to Top 250 Million Sq. Ft. in 2014

NAIOP Report Says Warehouse, Manufacturing Absorption Will Flirt With Record Levels in 2014 as E-Commerce, Housing Construction Expand

As major retailers and e-commerce firms such as Amazon.com continue to ramp up their distribution and fulfillment networks they are expected to be joined by building materials, appliances and furniture companies expanding their capacity as housing construction resumes in a strengthening economy. As a result, demand for warehouse and other industrial properties is expected to spike in 2014, according to a forecast released this week by the NAIOP Research Foundation.

"Demand for all types of industrial space -- warehouse, fulfillment-distribution centers, manufacturing and flex -- is robust," noted Thomas J. Bisacquino, president/CEO of NAIOP. "An intense increase in e-commerce has steepened the demand for distribution and fulfillment centers, and companies are gobbling up space as a result."

New housing starts were up 18% in 2013, and construction growth will likely continue as household formation rises and existing inventory is absorbed.

Meanwhile, the falling U.S. jobless rate and increased spending power for families is fueling gains in retail sales, which reached another record high in December 2013. Historically, rising retail sales has driven demand for retail space in shopping centers and malls. In the current cycle, demand for distribution and fulfillment centers will only increase as consumers purchase items online rather than traditional bricks-and-mortar stores.

"The combined forces of these two trends likely will result in continued growth in demand for warehousing and distribution facilities, specifically from the retail trade and housing construction sectors," Guirguis and Harris said in their report.

Choose DuPage Makes a Point for the Western Suburbs

THE WESTERN ACCESS O’HARE PROJECT

O’Hare International Airport is the nation’s second busiest airport. In 2005, O’Hare transported nearly 77 million passengers and 1.7 million tons of cargo – serving as a vital transportation link between the Chicago region and the rest of the world. However, its existing infrastructure is the cause of heavy delay and congestion. Currently, O’Hare is accessed from the east. The Western Access O’Hare project will give western access to the airport with an addition of a western roadway, allowing the region to meet future transportation needs.

THE PROJECT

The project begins with an addition of nearly 50 expressway lane miles through the conversion of Thorndale Avenue into a limited-access four-lane highway, creating an extension to the Elgin-O’Hare Expressway. With this extension, a bypass or ring road will then be created in order to connect I-90 and I-294.

CONSIDER THE FUTURE

The increased transportation and infrastructure will bring with it a modern and diverse economic base that will transform the region. The area will become a prime location for businesses to locate and future developments.

CONSIDER THE BENEFITS:

▪   Location – At the heartbeat of the Midwest – the center of the nation’s busiest transportation hub

▪   Land – Enough to build big

▪   Workforce – Skilled, educated, competitive labor

▪   Financial Benefits – Savings on fuel, time, recruitment, incentives

▪   Quality of Life – It’s all here – education, entertainment, culture

With unparalleled proximity to the airport, I-90, I-294, and I-290, businesses looking to locate in the newly available developments will be taking advantage of transportation gateways to the rest of the world. In an increasingly global economy, enhanced access to national and global markets, along with a reduction in delay time, will enhance the competitiveness and productivity of local businesses while facilitating economic growth.

ECONOMIC IMPACT

The benefits from this project are not only compelling, but would completely transform the economy of the region. The following is a list of some of the economic benefits of the project, found by the Elgin-O’Hare Western Bypass Advisory Council:

▪   Opportunity exists to create 65,000 jobs by 2040

▪   Local tax revenues are expected to increase by $29 million annually (based on 2010 projection)

▪   13,450 jobs will be created annually in the region during construction

Travel delays will be reduced, saving $145 million annually by 2040