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Randolph Taylor

Multifamily Investment Sales Broker at Marcus & Millichap
Chicago-Oak Brook
O (630) 570-2246
M (630) 344-9355
Randolph Taylor

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Vacancy in Chicago-area retail properties declined for the second straight quarter during the first three months of 2017.

The rate fell to 9.5 percent, down from 10.1 percent in the fourth quarter—but an increase from the year-earlier period's 8.9 percent.

Vacancy is expected to remain more or less steady in the near term as supply of new space is pinched.

"I don't see anything on the horizon that's going to goose the vacancy," said Kim McGuire, a senior vice president of CBRE, which conducted the survey. Not that much new construction is hitting the market, he said, and what does is significantly pre-leased.

 

Moreover, the unemployment rate fell to a 10-year low of 4.5 percent in March, and consumer confidence rose to its highest level since 2000, spurring demand, CBRE said. Asking rents climbed to $18.65 a square foot from $18.54 in the fourth quarter. Asking rents were $18.75 a year ago.

But any optimism on the retail front is tempered by prospects for a record year of bankruptcies in 2017, as the industry adjusts to more online shopping and fewer visits to the mall. Already this year, bankruptcy filers include the Limited, RadioShack, hhgregg and Gander Mountain. Other retailers, like Sears Holdings and Macy's, are closing stores by the score.

The picture for retail landlords has improved since the third quarter, when vacancy hit a recent peak of 10.2 percent. A major factor was more than 1.3 million square feet flooding the market after Sports Authority's liquidation.

Although the biggest first-quarter leases were for a Mariano's supermarket in Crystal Lake and a Dick's Sporting Goods store in Gurnee, fitness facilities—whether big (LA Fitness) or small (Orangetheory Fitness)—are the hungriest space eaters, CBRE said.

Another bright sector was "power/community" developments, where first-quarter vacancy was 7.2 percent.

Mellody Farm, a  270,000-square-foot mixed-use development  in Vernon Hills announced this month, is due for completion by the end of next year. Anchors include a Whole Foods Market, Nordstrom Rack and REI.

Also in the category is Kildeer Village Square under development in north suburban Kildeer.

The lowest vacancy was in the city north of the Eisenhower Expressway, at 3 percent, while the west suburbs clocked in at 5.8 percent. Far west suburbs had the highest submarket vacancy (12.9 percent), while neighborhood vacancy overall was 13.5 percent.

"Anything that has 'far' in front of it has high vacancy," said McGuire, a result of overly optimistic developer projections for housing growth. (The far southwest suburbs were an exception, with 5 percent vacancy.)

Although fast-casual restaurants have propelled leasing, the category is not immune to competition. Two pizza chains retrenched: Toppers closed all five Chicago-area locations, and Pie Five shut eight of nine local restaurants.

On the South Side, Binny's Beverage Depot moved its Hyde Park location to 47th Street in the Kenwood neighborhood, increasing its store size to 11,000 square feet from 3,500.

Warehouse space vanishing as fast as you can click Buy it

Randolph Taylor

Multifamily Investment Sales Broker at Marcus & Millichap
Chicago-Oak Brook
O (630) 570-2246
M (630) 344-9355
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Warehouse space vanishing as fast as you can click Buy itWarehouse 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.

Warehouse space vanishing as fast as you can click Buy
Warehouse space vanishing as fast as you can click Buy

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."

Commercial Real Estate Price Indices Post Fifth Straight Year of Growth

Randolph Taylor

Multifamily Investment Sales Broker at Marcus & Millichap
Chicago-Oak Brook
O (630) 570-2246
M (630) 344-9355
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Q3 2016 Apartment Trends

  • 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.

 

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Source: Reis Nov 3, 2016

U.S. Office Sector Enjoys Steady Leasing Momentum

Randolph Taylor

Multifamily Investment Sales Broker at Marcus & Millichap
Chicago-Oak Brook
O (630) 570-2246
M (630) 344-9355
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Q4 2015 Office Trends

Q4 2015 Office Trends

National Office Market

National vacancies fell by 20 basis points in the fourth quarter, ending the year at 16.3 percent. The 20 basis point decline in vacancies is, though quite modest based on historical standards, the greatest pace of improvement in fundamentals for the office sector since the recovery began in 2010. Overall, vacancies fell by 40 basis points in all of 2015, suggesting that momentum in office fundamentals is building.

Asking and effective rents both grew by 0.8 percent in the fourth quarter and by 3.1 and 3.2 percent, respectively, throughout 2015. That is the best annual performance for asking and effective rents since the recession; the recovery for office properties has very much mirrored the slow growth of the overall economy, and it’s a shame that now that office fundamentals appear to be improving better – we appear to be running into more economic headwinds.

 

Q4-2015-office-market-graph.jpg

Supply and Demand Trends

Q4 2015 Office Trends: The good news is, despite a murkier outlook for the domestic economy, we see much less supply growth for office markets that might lower expectations even further. The economy growing by 2.0 to 2.2 percent, creating jobs in the low 200s, on average per month, would augur well for office fundamentals. Our estimate of office-using employment has risen faster than nonfarm employment for the last couple of years, and we expect that trend to continue.

As it stands, our projections of vacancy rates falling gradually over the next five years are conservative. We expect to hit the 14s at the end of the forecast period, and if historical patterns hold true it is only below that figure that asking and effective rents can really start to take off.

Source: REIS Victor Calanog on Feb 23, 2016

Randolph Taylor

Multifamily Investment Sales Broker at Marcus & Millichap
Chicago-Oak Brook
O (630) 570-2246
M (630) 344-9355
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Q3 2015 Apartment Trends

Q3 2015 Apartment Trends - After holding steady at 4.2 percent for the first two quarters of 2015, the national vacancy rate rose by 10 basis points to 4.3 percent during the third quarter. We have been expecting that vacancies would rise given the amount of new supply coming online. Vacancies have been bouncing around at these levels for the last two years, with a similar 10 basis point increase in the third quarter of 2014 (only to fall once again at the start of 2015). Overall, market fundamentals remain tight.

Asking and effective rent growth was very impressive, rising by 1.4 and 1.5 percent respectively. On a year-over-year basis, asking rents rose by 4.2 percent, and effective rents rose by 4.3 percent. These are robust figures, strong enough to fuel the hopes of optimists banking on resilient rent growth even if occupancies stay flat or deteriorate. For perspective, apartment rent growth has not been this strong (on a year-over-year basis) since 2007.

Q3 2015 Apartment Trends

Supply and Demand Trends
Over 40,000 units were brought to market during the third quarter, which is less than the second quarter figure; yet – vacancies rose. It is only in retrospect that we will be able to proclaim this third quarter rise in vacancy as a true inflection point, but if the market is showing signs of being unable to absorb 40,000 units of new construction, what will happen when close to 100,000 units come online over the next quarter or two, as our latest projections show? Fundamentals remain tight, but it will be interesting to see where the intersection of demand and supply plays out over the next few quarters.

We expect national vacancies to rise modestly over the next few years, but we're not very worried about the multifamily sector if these projections come to pass – vacancies will be in the low to mid 5s by 2019, which doesn't portend lean times ahead.

Source: Reis by Victor Calanog on Dec 8, 2015

Randolph Taylor

Multifamily Investment Sales Broker at Marcus & Millichap
Chicago-Oak Brook
O (630) 570-2246
M (630) 344-9355
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Q3 2015 Office Trends

National Office Market

Q3 2015 Office Trends: Office vacancies fell by 10 basis points to 16.5 percent in the third quarter, after holding steady at 16.6 percent for the first half of the year. The sector is treading a familiar path of a sluggish downward trend in vacancies, which began in late 2010 after the vacancy rate peaked at 17.6 percent.

Given how monthly job growth has actually been weaker in 2015 relative to 2014’s monthly average, this is fairly impressive. Aided by very constrained levels of supply growth, absorption and construction have mostly kept pace, and asking and effective rents also continued their march upwards, albeit at a modest pace.

Asking and effective rents grew by 0.6 and 0.7 percent respectively during the third quarter, marking the twentieth consecutive quarter of asking and effective rent growth. These growth rates are more or less in line with the growth rates from last quarter. However, even though quarterly rent growth did not accelerate, year-over-year rental growth rates for both asking and effective rents did accelerate. Effective rent growth of 3.5 percent is quite strong for a property type with a relatively elevated vacancy rate. We are on track for a 30 basis point decline in vacancies for 2015, the strongest showing for the sector since 2012.

Q3 2015 Office Trends
Q3 2015 Office Trends

Supply and Demand Trends

Very slowly, the recovery in the Office market is gathering pace (as contradictory as that sounds). 2015 is shaping up to be the best year for demand for office space (as measured by net absorption) since 2007, before the recession.

Year-to-date figures for most metrics are already well ahead of last year. Because the improvement in the Office market has been so gradual, it has largely gone unnoticed by many in the industry. However, improvement is becoming stronger and more consistent. Unless we encounter a major downturn in the near future, this argues for better times for the office market over the next five years.

Source: REIS Victor Calanog on Dec 8, 2015

Q3 2015 Retail Trends

Randolph Taylor

Multifamily Investment Sales Broker at Marcus & Millichap
Chicago-Oak Brook
O (630) 570-2246
M (630) 344-9355
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serveimage

Q3 2015 Retail Trends

National Retail Market
On a quarterly basis, retail fundamentals have been improving only slightly. The third quarter was no different - the national vacancy rate for neighborhood and community shopping centers was once again unchanged at 10.1 percent. This marked the second consecutive quarter that vacancy was stagnant. Over the last 12 months, the national vacancy rate declined by just 20 basis points, a rather modest change for that duration of time.

Asking and effective rents both grew by 0.5 percent this quarter. This is just about on par with rent growth over the last couple of quarters. This rate of rent growth is understandable, given the relative lack of demand for these centers.

What about regional malls, the larger property type? During the third quarter, the regional mall vacancy rate was unchanged at 7.9 percent. The vacancy rate has remained essentially the same between the fourth quarter of 2013 and the third quarter of 2015. Asking rents did grow by 0.5 percent during the third quarter – year-over-year rent growth remains at its strongest since before the recession in 2007. However, this continues to be largely driven by the performance of higher end malls. Malls further down the quality spectrum are often burdened with high vacancy rates, often from unfilled anchor tenant space, preventing them from exercising pricing power over current and potential tenants.

Ret-Q32015

Supply and Demand Trends
The outlook should be relatively bright for retail sales, with consumer spending still relatively healthy and benefiting from cheaper oil. However, any benefit of said brighter outlook for retail properties is likely to remain muted, given how eCommerce appears to be acting as a constraint on demand for brick and mortar space.

Source: REIS Victor Calanog on Dec 8, 2015

Randolph Taylor

Multifamily Investment Sales Broker at Marcus & Millichap
Chicago-Oak Brook
O (630) 570-2246
M (630) 344-9355
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Chicago Suburban office vacancy falls to 14-year low

Even as some of their most recognizable tenants continue moving workers downtown, suburban office landlords keep filling up their vacant space.

Overall suburban vacancy fell to 19 percent during the third quarter, the lowest level in 14 years, according to Chicago-based Jones Lang LaSalle. That's a big drop from 20.3 percent vacancy in the second quarter, and 23.4 percent a year earlier.

Vacancy in Chicago's suburbs is in the teens for the first time since 2007. Vacancy peaked at 25.4 percent in 2010 during the early years of a prolonged real estate downturn.

Amid an improving economy, many companies are expanding again or making long-term commitments to office space in the suburbs.

“There's a pipeline of companies that weren't making big decisions, and were doing short-term (lease) renewals instead,” said tenant broker Jim Rose, a JLL vice president who is active in the northwest and O'Hare submarkets. “Those companies that were putting all their decisions on hold are now creating a ton of activity. We see it with contractors, with architects, all across the industry. Tenant confidence is really high right now.”

The vacancy drop belies the broader narrative about the office market that has developed as several big tenants have decided to ditch the suburbs for the city. The latest round of high-profile moves downtown includes Kraft Heinz's deal to move its headquarters to the Aon Center from Northfield and Schaumburg-based Motorola Solutions' headquarters shift to 500 W. Monroe St. Omaha, Neb.-based ConAgra Foods is moving its headquarters to Chicago's Merchandise Mart, a deal that includes closing the company's Naperville office.

Meanwhile, Oakbrook-based McDonald's was close to a lease of more than 350,000 square feet at Prudential Plaza before halting the deal, at least for the moment.

“Those are big-time names, so there's a reason they're grabbing the headlines,” Rose said. “But there's a lot more tenants out there than four. There's still a huge number of tenants that aren't looking downtown and are re-committing to the suburbs.”

Chicago Suburban Vacancy Lowerst in 14 Years

Although some tenants are focused on urban locations in order to recruit and retain younger workers, the suburban market is experiencing a revival in part because of pent-up demand for extra space, Rose said. After years of putting off long-term real estate commitments because of a shaky economy, tenants that are entrenched in the suburbs have now begun relocating to new space or adding on to their longtime offices, he said.

Demand—as measured by net absorption, the change in the amount of leased and occupied space—increased by 603,860 square feet in the third quarter. Net absorption has been greater than 600,000 square feet, or larger than many suburban office buildings, in three of the past six quarters.

Relocations that contributed to absorption included Baxter International spinoff Baxalta's headquarters move to all of a 257,191-square-foot building in Bannockburn, and pasta maker Barilla—which was displaced by the Baxalta deal—relocating its American headquarters to a 75,260-square-foot building in Northbrook.

Large leases signed in the third quarter, which will affect future vacancy figures after the tenants move, include the decision by the North American unit of London-based financial services firm HSBC to consolidate almost 1,500 local employees to 162,396 square feet in Arlington Heights. In the second-largest deal, Horizon Pharma plans to triple its head count when it moves its U.S. headquarters to about 133,000 square feet in the former Solo Cup headquarters space in Lake Forest.

Lake County remained the submarket with the highest vacancy, at 24.2 percent, down from 24.9 percent in the previous period. The lowest vacancy remained in suburban Cook County, at 9.9 percent, down from 12.2 percent a quarter earlier.

Northwest suburban vacancy was the second-highest at 20.4 percent, and that area faces additional space coming back to the market in Schaumburg as Zurich North America prepares to vacate its nearly 900,000-square-foot, two-tower complex for a new campus. Motorola Solutions also plans to sell its excess suburban space after moving the headquarters downtown.

Source: Chicago Real Estate Daily October 12th, 2015 Ryan Ori

Randolph Taylor

Multifamily Investment Sales Broker at Marcus & Millichap
Chicago-Oak Brook
O (630) 570-2246
M (630) 344-9355
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abq-uptown-03

Vacancies Fall Rents Up at Malls and Shopping Centers

U.S. malls and shopping centers saw vacancy rates fall and rents tick up during the first quarter, as construction in the retail sector was muted.

Asking rents at strip and enclosed malls increased by 0.5% in the first quarter from the prior quarter, according to real-estate research firm Reis Inc. Shopping-center asking rents are up 1.9% from a year ago, while mall asking rents are up 1.8% annually.

The average vacancy rate for shopping centers fell to 10.1% from 10.4% a year earlier. Shopping centers have struggled to fill retail space since the downturn. Vacancy rates peaked at 11% in 2010 and haven’t fallen meaningfully since then.

Malls, on the other hand, have recovered considerably more quickly. Vacancy rates at regional malls fell to 7.9% in the first quarter from their peak of 9.4% in the third quarter of 2013, according to Reis.

Part of the divergence in recovery has to do with supply, according to Ryan Severino, a senior economist for Reis. There was a surge in shopping-center construction before the downturn and the market has had trouble absorbing that space with new retail leases. Mall construction, by contrast, has fallen dramatically over the past two decades.

Another issue is competition, said Mr. Severino. Consumers have more options for where to buy the items available at strip centers, including the Internet, outlet centers and downtown shops.

Demand has kind of splintered,” Mr. Severino said. “When it comes to neighborhood and community centers, they’re often selling more mundane products. You don’t find a lot of Gucci stores in those centers.”

Rick Caruso, a real-estate investor who owns 10 open-air shopping centers in Southern California, including The Grove in Los Angeles and The Americana at Brand in Glendale, said rents are rising in large part because online retailers like eyeglasses shop Warby Parker, apparel maker Bonobos and others are seeking a physical presence in shopping centers to showcase their products.

He said Caruso Affiliated, his development firm, has a list of two dozen of these so-called e-tailers seeking brick-and-mortar spaces in his centers.

“We’re pushing up rents across the board, but only when we can have a healthy retailer,” Mr. Caruso said. “Retailers are just more bullish right now.”

Source: Wall Street Journal ROBBIE WHELAN April 3, 2015 12:01 a.m. ET