by Dan Rafter
The commercial real estate recovery is a strong one today in the city of Chicago. But there are plenty of positives in the city’s suburban markets, too. John Picchiotti, chief operating officer for brokerage in the Oakbrook Terrace, Ill., office of NAI Hiffman, told Midwest Real Estate News that brokers specializing in all property types can find good news in the Chicago suburbs.
Midwest Real Estate News: Are you seeing more CRE activity in the Chicago suburbs today than you were maybe one or two years ago?
John Picchiotti: Absolutely. If we go by property type, industrial was very strong in 2013. The net absorption for this market was 15.8 million square feet in 2013 and 14.6 million square feet in 2012. So we have had some strong absorption for several years now. Vacancy rates in suburban industrial are below 9 percent. Things have steadily improved since the days of the recession. We are also seeing Class-A pricing getting close to pre-recession levels. The demand for industrial in the suburban market is high right now.
MREN: Are you seeing much spec construction in the suburban industrial market today?
Picchiotti: Yes. At the end of 2013, there was 8.7 million square feet of total construction in industrial. About half of it was speculative. That’s a good sign. The year before, 80 percent of the new industrial construction was build-to-suit. Now we are starting to see a lot of spec development coming out of the ground. The demand is strong. It is there. The market fundamentals are good. We’ve seen rent growth. All the indications with industrial are good.
MREN: Are you seeing more companies hoping to move into facilities in the suburbs instead of the city?
Picchiotti: A couple of years ago when you talked to large institutions that were looking to get back into the real estate market and buy, they’d tell you that they were interested in Chicago and wanted to stay away, say, from suburban office. That is changing. The suburban office market in 2013 was starting to trade again.
MREN: How strong was the suburban Chicago office market last year?
Picchiotti: In 2013 the suburban office market absorbed 960,000 square feet versus the city which saw 1.1 million square feet absorbed. So there isn’t that much difference. When a company like Google moves to the city, that news generates a lot more publicity than all the activity we see in the suburbs. The office vacancy rates in the city and suburbs have improved since 2010. There has been steady improvement in both markets.
MREN: How high is the vacancy rate in the suburban market today?
Picchiotti: The suburban market: vacancy rate was under 20 percent in 2013. That’s the first time we saw that since the recession began. The vacancy rate came in last year at 19.88 percent. It has broken the 20 percent barrier. That’s good news. Institutions that weren’t considering suburban office a year or two ago, are now considering it. There is a heck of a lot more demand for suburban office than there was a year-and-a-half ago. Those are all good signs. There are some real opportunities for buyers in suburban office. They see that the market is about to turn. They want to get in at the right time. We expect plenty of movement in suburban office in 2014.
MREN: How is the retail market performing in the suburbs?
Picchiotti: In retail in Chicago, something that was disruptive was Dominick’s closing its doors. At the same time, it has been amazing to see how quickly a lot of the vacant Dominick’s stores have been absorbed by new players. Like Mariano’s Fresh Market, Whole foods and Angelo Caputo’s Fresh Markets. They came in and are absorbing a lot of the vacant Dominick’s stores.
MREN: Why do you think things are getting so much better?
Picchiotti: The fundamentals are improving in the business world. Unemployment is down. Consumer confidence and the stock market are up. There is more capital to spend. The lenders are coming back. Lenders are more active now. A couple of years ago, it was tougher to get the real estate loans. Real estate lending is making a comeback today. That will help move the market. Even from the standpoint of user sales. The number of user sales in our office doubled last year from the prior year. There has been a lot more real estate trading. More companies are willing to make a large capital or real estate acquisition.
MREN: Is there anything about the suburban Chicago market that makes it a strong one?
Picchiotti: There are plenty of positives with being in the Chicago-area market. We have great transportation, a great transportation infrastructure. We are a leading manufacturing hub. The financial sectors are robust here. The rising tide of the national economy is certainly going to buoy Chicago. Other markets like Houston have been white-hot. But a lot of that has been energy-related. Chicago is enjoying a broader-based recovery. I have no reasons to believe that this recovery is going to slow down in the near future.