NAI Hiffman Chicago’s industrial market the most influential in the Midwest — and it’s on a hot streak

nai hiffman statsby Dan Rafter

There was a time when the multifamily market was the only darling in commercial real estate. That sector remains hot. But the industrial market is starting to catch up. And in Chicago? The industrial market is soaring.

The latest industrial report from Chicago’s NAI Hiffman provides the latest evidence that the Chicago-area industrial market is in the middle of a sustained hot streak.

Just look at the numbers: The Chicago industrial market saw 3 million square feet of positive absorption in the first quarter. At the same time, its vacancy rate fell to 7.84 percent.

This has inspired a surge in new construction in the area, with NAI Hiffman reporting that 12.7 million square feet of industrial space is now under construction in the market. The Chicago industrial market also saw 3 million square feet of new industrial space completed during the first quarter.

These positive numbers are welcome. Chicago is the most influential industrial market in the Midwest, and one of the most important in the country. As NAI Hiffman says, Chicago is the second-largest industrial market in the country, with more than 1.2 billion square feet of inventory. This is second only to the industrial market in the greater Los Angeles area.

What’s behind Chicago’s strong first-quarter performance? An improving local economy is helping. But Chicago is also becoming more important to manufacturers as an inland port. The region also benefits from a diverse and comparatively low-cost labor force.

You can’t discount the city’s location, either. Chicago rests within a single day’s drive of one-third of the country’s population, and is in the path of three of the United States’ busiest transcontinental expressways — Interstates-80, -90 and -94).

The best news from the NAI Hiffman report? The experts at this company predict that the Chicago industrial market is only going to get stronger in the months to come. That’s good news for anyone hoping for a more sustained economic recovery in Chicago and the rest of the Midwest.

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Commercial Kentucky’s good news: Office vacancies continue to fall in Louisville market

louisville office statsby Dan Rafter

When you list the strongest real estate markets in the Midwest, you can’t leave out Louisville. This Kentucky city is performing as well as any Midwest market today. Credit its central location, well-educated workforce and pro-business government.

The latest office snapshot report from Commercial Kentucky provided yet more proof of the strength of the Louisville region, as vacancies continue to fall in the office sector.

But not all the news was good. Vacancies are down, but so are asking rents and leasing activity.

According to Commercial Kentucky, the overall office vacancy rate fell to 13.7 percent in the first quarter of 2015. That’s down a full percentage point from the first quarter of 2014, when the market’s office vacancy rate stood at 14.7 percent.

This doesn’t mean, though, that the office market here isn’t without its challenges. Commercial Kentucky put some of the blame on the rough winter, but Louisville’s Central Business District saw just 34,476 square feet of leasing activity in the first quarter of this year. That’s a paltry number, down from 108,676 square feet of leasing activity in the CBD in the fourth quarter of 2014.

There was more activity in the suburban markets in the first quarter, 120,191 square feet. That’s up from 94,588 square feet of leasing activit in the suburbs in the fourth quarter of last year.

Commercial Kentucky is predicting that leasing activity, though, will end the year on a positive note. The company is predicting that activity will jump in the next 12 months.

Asking rents were down, too, in the first quarter. Commercial Kentucky reported that direct asking rents fell to $16.81 a square foot during the quarter. That number stood at $17.14 a square foot in the first quarter of 2014.

Overall, though, the office market looks firmly in rebound mode in Louisville. And that’s particularly good news in a market that is already enjoying bustling industrial and multifamily markets.

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The Opus Group ready to make splash in healthcare sector

Mayo Clinic Center for Advanced Imaging Research in Rochester, Minnesota

Mayo Clinic Center for Advanced Imaging Research in Rochester, Minnesota

by Dan Rafter

Minneapolis’ The Opus Group has already made an impact in the healthcare sector: Opus has served as the developer or contractor for healthcare projects across the country, including such notable ones as the Kohl’s Wellness Center in Menomonee Falls, Wisconsin; Columbia St. Mary’s Gateway Health Center in West Allis, Wisconsin; and a 354,000-square-foot office building extension for UnitedHealth Group in Minnetonka, Minnesota.

It makes sense, then, that The Opus Group has formed a new healthcare division to focus solely on delivering projects for hospitals, physicians groups and other medical providers.

Tom Shaver, the newly appointed president of Opus Healthcare and a 31-year commercial real estate industry veteran, said that the time was right for Opus to create a formal division to handle the changing real estate needs of healthcare providers.

Tom Shaver

Tom Shaver

Shaver said that there are several trends today that are disrupting the healthcare system. This includes an aging population that needs more medical care and a rise in the number of people who now have health insurance thanks to the Affordable Care Act.

Then there are the evolving demands of patients: Many no longer want to treat any but their most serious ailments at large, centrally located hospital campuses. Patients today want to receive fast treatment at ambulatory care centers and other smaller, neighborhood clinics.

And why not? Going to a big hospital’s emergency room can be an all-day hassle of long lines and interminable paperwork. Going to a neighborhood clinic might require just an hour-long stop in a busy day.

These three key factors are changing the way medical providers think about real estate. More are interested today in building smaller outpatient-centered clinics.

This created an environment in which it made sense for Opus to formally build a healthcare division, Shaver said.

“As we looked at the disrupters in this industry, it became clear during our strategic planning process a few years back that we should pursue healthcare in a more purposeful way,” Shaver said.

A changing sector

Opus Healthcare is wading into a healthcare real estate environment that is in the middle of several major changes.

Shaver says that medical providers are moving toward a retail model of providing healthcare. This means that there has been a shrinking footprint around the traditional hospital campus. Providers are embracing the clinic and ambulatory strategy of scattering smaller care centers in the neighborhoods and communities that they serve.

This has been a positive for consumers. Hospitals and medical providers if they want to remain attractive to today’s patients must be willing to provide them with more options for receiving care, Shaver said.

“You as a consumer of healthcare have more portability today than you did 10 years ago in managing your own health and wellness,” Shaver said. “Consumers are becoming more discerning in who they use as their healthcare provider for whatever illness they are dealing with.”

This means that consumers instead of driving to the middle of the city to a crowded emergency room, might be able to drive a mile to a neighborhood clinic affiliated with that big-city hospital to treat the same ailment.

Technology, too, is having an important impact on the medical field, Shaver said. Telemedicine is becoming more popular, giving patients the chance to receive treatment — or practice preventative care — online or through a phone call. Some medical providers are experimenting with wearable technology that helps them remotely monitor the health of their patients.

All of this combines to make visits to hospitals and their emergency rooms less frequent for many patients. The goal, Shaver says, is for everything from telemedicine and neighborhood clinics to handle most routine medical care while hospitals are reserved for the most serious of illnesses and injuries.

A boom in health insurance

Shaver said that medical providers have to be creative in how they treat patients today. That’s partly because there are so many more potential patients out there.

Shaver says that in 2013, there were an estimated 40 million to 45 million U.S. residents who lacked health insurance. In the next 10 years, because of the Affordable Care Act, that number will drop to roughly 20 million to 23 million, he said.

“You have a significantly larger percentage of the population getting insurance and using the healthcare environment for health and wellness,” Shaver said. “That will put more pressure on the system. It will translate into an even bigger focus on the hub-and-spoke concept of healthcare, with the hospital as the hub and the ambulatory care centers as the spokes.

“We need more efficient, more flexible and more clinical care out in the communities to handle the traditional maladies that exist for patients,” Shaver said. “That will hopefully free up the hospitals for acute care.”

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DTZ report: Office market in Twin Cities enjoying quiet resurgence

(courtesy of DTZ)

(courtesy of DTZ)

by Dan Rafter

The multifamily and industrial markets in Minneapolis/St. Paul are thriving. Just look at the number of construction cranes and spec warehouses being built in the Twin Cities area today.

But the office market in the Twin Cities is actually enjoying a quiet resurgence, too. And that’s good news for anyone hoping for busy times for commercial real estate in 2015 and beyond.

DTZ recently released its first quarter office report for the Minneapolis/St. Paul area. And the company found plenty of good news. Most important, the metropolitan area enjoyed nearly 300,000 square feet of net absorption in the first quarter of 2015.

Tyler Allen, research analyst in DTZ’s Minneapolis office, said that that five of the six office submarkets that DTZ studies showed positive absorption in the first quarter. All office types, too, enjoyed positive net absorption during the quarter, Allen said.

Of course, certain submarkets are performing better than others.

“The Minneapolis Central Business District and hotspots in the Southwest and West/Northwest markets continue to significantly outperform the metro averages,” Allen said. “Demand for office space in mixed-use neighborhoods has continued to boost their micro-markets.”

fifth street towers

Strong numbers

The overall vacancy rate for the Twin Cities office market fell to 14.4 perent in the first quarter, according to DTZ. That is a drop of 2.5 percent in vacant space since the first quarter of last year. This also represents the largest 12-month change in office vacancies in more than a decade.

The West/Northwest and Minneapolis CBD submarkets remain the strongest when it comes to office activity. DTZ reported that of the 290,000 square feet absorbed in the first quarter, more than 85 percent of it took place in these two key submarkets.

Class-A properties saw the lowest vacancy rate by building type. This rate stood at 10.8 percent in the first quarter of the year. The Minneapolis CBD had the lowest office vacancy rate of any submarket, 12.3 percent.

Behind the good numbers

There are several reasons for the strong performance of the office market in the early stages of the year. The overall unemployment rate in the state of Minnesota was a low 3.7 percent. That’s much better than the overall U.S. unemployment rate of 5.5 percent.

At the end of 2014, there were 89,900 job openings in the state, 47 percent higher than a year earlier. It’s also the highest number of job openings since 2001. According to DTZ’s report, there are now 1.1 unemployed people for every active job opening in the state. That’s down from 2.1 people per opening last year.

Like other markets in the Midwest, the Twin Cities is seeing renewed interest in its urban core, DTZ said. That’s evident in two companies making moves from the Twin Cities’ suburbs to the CBD.

Varde Partners plans to relocate to 36,000 square feet in the AT&T Building downtown from the Normandale Lakes office park in the Southwest submarket. Qumu will move from the West/Northwest submarket to the CBD in a 17,000-square-foot deal.

There was one particularly large office sale in the first quarter in the TWin Cities market: The 1.06-million-square-foot Fifth Street Towers in Minneapolis’s CBD sold for $154 million.

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Another big deal: Cushman & Wakefield to buy Chicago office specialist J.F. McKinney + Associates

Jack McKinney

Jack McKinney

by Dan Rafter

Major changes to the Midwest commercial real estate industry keep coming. This time, it’s the news that Cushman & Wakefield has agreed to purchase J.F. McKinney + Associates in Chicago. Terms of this latest big deal were not released.

This announcement comes almost immediately after news broke that DTZ is considering purchasing Cushman & Wakefield for $2 billion. Also this month, Prologis and Norway’s Norges Bank Investment Management announced that it will buy KTR Capital Partners for $5.9 billion. That’s a big buy for Prologis: KTR owns nearly 70 million square feet of industrial real estate in 25 markets.

The Cushman & Wakefield purchase of J.F. McKinney + Associates is important to the Midwest, too. J.F. McKinney is a busy player in Chicago’s office leasing market. The firm represents more than 16 million square feet of Chicago-area office.

Many of the buildings that J.F. McKinney represents are well-known in the Chicago area: the Merchandise Mart, John Hancock Center, 300 North LaSalle, 70 West Madison and 440 South LaSalle.

Jack McKinney, president and founder of the company, said that the offer from Cushman & Wakefield was just too good to pass up.

“Now we are capable of creating more value for our clients,” McKinney said in a written statement. “It’s an unmatched opportunity for our agents and our clients.”

McKinney explained further on a letter posted to the J.F. McKinney Web site:

“After lengthy consideration and heartfelt self-reflection, we have decided our clients would benefit from a more robust platform of commercial real estate services and better access to first-class research capabilities and worldwide industry intelligence,” McKinney wrote.

Shawn Mobley, president of Cushman & Wakefield’s Central and Southeast regions and Chicago market leader, said that the acquisition gives his company the chance to expand its foothold in the Chicago office market.

“We have been working hard to successfully broaden and deepen our services in Chicago,” Mobley said in a statement. “Building a market-leading agency leasing platform was always one of our top priorities.”

During the last 25 years, J.F. McKinney has closed nearly 25 million square feet of leases. The company has secured such notable anchor tenants during this time as Goldman Sachs, IBM, Mayer Brown, Hyatt Corporation and Abbot Laboratories.

Jack McKinney wil join Cushman & Wakefield as vice chairman, and will be responsible for leading the Chicago agency leasing practice.

The acquisition is expected to close before April 30.

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CBRE: Kansas City office, industrial markets keep improving

CommerceTower_lgby Dan Rafter

The Kansas City office market has posted 12 consecutive quarters of positive net absorption.

That’s good. But the region’s industrial market has it beat: That sector has posted 14 straight quarters of positive absorption.

That’s the big news from CBRE’s first quarter office and industrial MarketViews reports.

According to CBRE’s numbers, the Kansas City office market saw 161,938 square feet of positive net absorption in the first quarter of 2015. That brought the vacancy rate in this sector down to 14.8 percent.

On the industrial side, the Kansas City region saw 137,480 square feet of positive net absorption in the first quarter. Lease rates in this sector rose to $4.30 a square foot in the quarter, up from $4.26 a square foot during the fourth quarter of 2014.

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Some good news from DTZ: Office vacancy rate keeps falling

by Dan Rafter

The national office sector continues to improve. This isn’t surprising: The U.S. economy is slowly improving, too.

Check out the video above to see what DTZ thinks about the performance of the U.S. office market in the first quarter of this year.

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