Warehouse space vanishing as fast as you can click Buy it
Warehouse space vanished faster in 2016 than it ever has in the Chicago area, led by Amazon and other online retailers.
Industrial tenants absorbed an all-time high of 26.6 million square feet in the area last year, according to Seattle-based Colliers International. That more than offset 22.3 million square feet of new construction completed in 2016, the highest total in 11 years.
Overall vacancy fell to 6.7 percent in the fourth quarter, down from 6.8 percent in the previous period and 7.3 percent a year earlier. That’s the lowest level of vacancy since the first quarter of 2001.
“This is about as good as it gets,” said broker David Bercu, a principal in Colliers’ Rosemont office. “We’ve got really strong demand, equilibrium between supply and demand, a healthy economy and no apparent indicators that things are going to slow down. What’s really positive is that there is strength across all geographic areas of the market and all deal sizes.”
Amazon continued to be a dominant force, signing the three largest leases of the fourth quarter. The Seattle-based e-commerce behemoth accounted for five of the 10 largest industrial leases in the area in 2016.
Its fourth-quarter deals included two in Aurora: 954,720 square feet at 1 Duke Parkway and 402,860 square feet at 4200 Ferry Road, both in Butterfield Corporate Park. The second-largest deal of the quarter was a 626,848-square-foot lease at 1750 Bridge Drive in Waukegan.
“Amazon is a beast,” Bercu said. “Now that they’ve made a concerted effort to get into Illinois, they are absorbing space at a rapid pace.
“I think they’ve got their eyes on some other opportunities. They’ll probably make a couple more deals (in 2017), but I don’t think they’ll be responsible for five of the 10 largest again.”
Demand, as measured by net absorption—the change in the amount of occupied space compared with the previous period—was positive for the 19th consecutive quarter. Tenants gobbled up 7.1 million square feet during the fourth quarter.
The Chicago area has about 1.35 billion square feet of total warehouse space.
Developers are trying to line up new projects to meet demand. In some top markets, such as around O’Hare International Airport, sites are tough to come by, Bercu said.
“In and around O’Hare, the cost of land is getting back to 2007 pricing, which was the peak,” he said. “Anything that’s considered an infill location is achieving premium pricing.”
Although there are no obvious factors that would slow the industrial market in 2017, President Donald Trump’s saber-rattling on international trade bears watching, Bercu said.
“Our industry thrives on imports and imports,” he said. “If there’s less product coming into the United States and being shipped out, companies aren’t going to have as much need for warehouse space. I don’t think it’s a major concern, but it’s something we’ll have to keep an eye on.”
The national vacancy rate for multifamily properties across Reis’s largest metro markets did not budge from it 4.4% in Q3 2016.
Close to 40,000 new units came online in Q3 2016.
Demand remained robust enough to absorb the amount of units that are coming online.
Asking and effective rents grew by 1%.
Year-over-year asking rents grew by 3.9% and effective rents grew by 3.8%.
Most expensive coastal markets’ highest priced properties are showing weakness.
Q3 2016 Office Trends
The national office vacancies remained moored flat at 16% in Q2.
Year-over-year office vacancies have declined 40 basis points.
Rents began to accelerate but fell back to its average quarterly level at .4% respectively for both asking and effective rents.
Year-over-year rents are seem to be healthy, pulling at 2.7% and 2.8%.
U.S. economy creating fewer jobs than in 2015 and 2014.
Upcoming November elections a determining factor for firms holding off long-term commitments.
Q3 2016 Retail Trends
Regional malls showed some improvement with vacancies declining 10 basis points to 7.8%.
Relatively strong asking rent growth at 0.5%; between 0.3% and 0.5% on a quarterly average asking rent growth.
Neighborhood and community shopping centers vacancies rising by 10 basis points ending Q3 at 10%.
Asking and effective rents both grew by 0.4%
Businesses are pulling back on capital spending and long-term investments, waiting on results of upcoming elections.
Q3 2016 Industrial Trends
Warehouse and industrial subsector vacancies remained stuck at 10.5% in Q3.
Year-over-year vacancies for warehouse and distribution declined by 20 basis points.
Asking and effective rents grew by 0.4% and 0.5% respectively, growing 2.1%-2.3% on a year over year basis.
Flex/RD showed more activity in Q3, falling 20 basis points to 11.4%.
Year-over-year Flex/RD has declined by 70 basis points.
Asking and effective rents grew by 0.4%, year-over-year growth in the low 2% range.
75,000,000 SF of new construction for warehouse and distribution for all of 2016.
Coldwell Banker Commercial Real Estate
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The national vacancy rate for multifamily remained moored at 4.4% in the third quarter, unchanged since the fourth quarter of 2015 despite the large number of new deliveries.
This confirms what we have posited thus far about demand remaining robust even as supply growth increases. With that said, this equilibrium is tenuous and likely won’t last.
For markets that experienced either a large increase in rents over the last few years, or a steady influx of new buildings – or both – landlord pricing power is being tested.
Market conditions in the apartment market softened a bit in the third quarter, a period they generally see the highest activity and strongest rent growth.
On Pause, Those Fine Hopes for 2016
We started 2016 feeling fairly optimistic about the prospects of the office sector. With the national vacancy rate declining by 40 basis points last year, we were poised to finally see an acceleration in improvement in fundamentals for the office sector.
With national vacancies remaining stuck at 16.0% in the third quarter, it appears that optimistic hopes about the prospects of the office sector have been put on hold – at least till the fourth quarter.
While the numbers disappointed in the quarter, much of the decline was a lagged response to tepid employment and economic conditions in the first quarter.
Two Steps Forward, One Step Back
The national neighborhood and community center retail vacancy rate increased by 10 basis points during the third quarter to 10.0%; the retail mall vacancy rate decreased by 10 basis points to 7.8%.
Both minor changes represent a reversal in the second quarter when the neighborhood and community center vacancy rate decreased and retail mall vacancy increased, both by 10 basis points.
Neighborhood and community centers have lagged due to the slow growth in median household income that has kept a lid on discretionary spending over the last few years.
Both neighborhood and community centers and regional malls face competition from newer and fresher retail concepts as well as e-commerce.
A Downshift in Demand
The momentum in the industrial market slowed a bit as demand growth decelerated. Nevertheless, vacancy held steady in the warehouse and distribution sector as net absorption exceeded new construction by a small margin.
Although the industrial sector has outperformed other property types in terms of occupancy growth, the down-shift observed in the third quarter puts the asset class on par with office and retail which followed a similar pattern.
Echoing the sentiment we expressed last quarter, the slow but steady rate of growth should continue going forward as most metros continue to see demand growth for industrial space.
Vacancy declined in the Flex/R&D subsector largely due to a sharp drop in new construction.
Net absorption slowed somewhat but remained positive. Market rents increased but also at moderate rates, similar to the second quarter.
Once again, every metro posted positive rent growth for the quarter, although some outperformed others.
New Construction at the Cusp of Economic Change
The third quarter of 2016 was marked by a somewhat consistent trend – a pronounced pullback in new completions, relative to recent quarters.
This is readily apparent in the apartment and office sectors, but less so in neighborhood and community shopping centers where supply growth has been anemic for several years anyway.
What caused this pullback – especially in multifamily where we were expecting a deluge in new supply?
Any pickup in activity for new completions is likely to be driven by projects that are already in the pipeline, just waiting to come online in what may well be a deluge for the apartment sector in the fourth quarter.
Total Space Available: 18,200 SF Rental Rate: $10.50 – $12/SF/Year Min. Divisible: 8,200 SF Property Type: Industrial Property Sub-type: Flex Space Building Size: 47,534 SF Lot Size: 3.34 AC
18,200 SF Flex-use space available for lease in Schaumburg ideally located just north of Golf Rd minutes from I-290 & I-90 offering ideal transportation N-S-E-W in the Chicagoland area from the NW suburbs. 8,200 SF of well-appointed executive offices currently configured with a welcoming reception area, 17 bright window lined glass-doored offices, spacious conference room, and four larger executive offices or additional conference rooms. 10,000 sf adjacent modern warehouse space offering 18’6″ clear heights, two shared recessed truck docks, one grade-level door, 800a/480v 3p heavy power and fully heated and cooled. Office space may be leased separately, but warehouse space is only available if leased along with the office space.
Space Available: 18,200 SF Rental Rate: $10.50 – $12/SF/Year Space Type: Flex Space Additional Space Types: Creative/Loft Min. Divisible: 8,200 SF Lease Type: Industrial Gross Date Available: Mar 2016 Lease Term: 60 Months No. Parking Spaces: 150 Office SF: 8200 SF No. Dock-High Doors/Loading: 2 No. Drive In / Grade-Level Doors: 1 Clear Ceiling Height: 19 ft.