by Dan Rafter
What does 2017 hold for commercial real estate? That was a key question during the 15th annual Commercial Real Estate Forecast conference held today by REJournals.
Some of the biggest names in the Chicago commercial real estate industry shared their predictions on how strong the development, leasing and sales ends of the business will be this year.
The good news? The panelists agreed that this year should be another busy one for Chicago real estate.
This panel featured Danny Nikitas, manging director of Avison Young; David Burden, principal with Colliers International; Bill Rolander, executive managing director with Newmark Grubb Knight Frank; Stephen Rachman, regional manager with Marcus & Millichap; John Morris, executive leader of industrial with Cushman & Wakefield; and Drew Nieman, executive vice president with CBRE.
Nieman said that the city’s A-plus office market is at a stunningly low 3.5 percent vacancy rate. This shows that the demand for these high-end office towers in downtown Chicago is nowhere near slowing, he said.
“People say why build another one?” Nieman said. “I say, ‘why not?’ People obviously want this.”
Burden said that there are key reasons why companies are moving to downtown Chicago today, often relocating from suburban locations.
“Location is driving these decisions,” Burden said. “They want to be close to the labor pool and transportation. Those factors are driving the downtown resurgence.”
The West Loop office market is especially tight today, Burden said. Users searching for big blocks of office space here will struggle to find these locations. The demand for new office space in the West Loop remains strong, Burden said.
Rolander said that the supply of office buildings has been reduced a bit, too, because of the trend of converting office space into non-traditional uses. This includes turning outmoded office space into high-end apartment buildings.
“That has reduced the supply of office,” Rolander said. “When office has been turned to non-traditional uses, it has certainly reduced the supply available to users.”
The industrial market in Chicago has also been strong for years. Morris said that the industrial industry at the end of 2016 here, though, has finally started to flatten. Rent growth has slowed, Morris said, and vacancy rates in the Chicago industrial market also rose a tick during the last quarter.
This isn’t necessarily a bad thing, though, Morris said. The Chicago industrial industry remains strong, even with the leveling off that it is now seeing.
“Flattening out is not a bad thing,” Morris said. “We have all been predicting this for four years, that supply would finally catch demand. At the end of 2016, we finally got to that point.”
Rachman had plenty of positives to share, too. He predicted that 2017 will be a busy year for investment sales.
“The first quarter of the year might be a little rocky with the new administration coming in,” Rachman said. “But there is a lot of capital out there. There is $400 billion in commercial real estate paper coming due. It all points to a very robust year for investment sales.”