CHICAGO, IL--The following summary is designed to provide a brief overview of the Chicago metro office and industrial markets during the second quarter of 2011. For more information or to speak with one of the company’s local market experts, please contact Ted McDougal (top right photo) at 312.698.6735 or via email at ted.mcdougal@grubb-ellis.com.
OFFICE TRENDS HIGHLIGHTS
The Chicago office market continued to improve in the quarter ended June 30. In fact, for the first time since 2009 a majority of submarkets in the city and suburbs showed positive absorption. Vacancy rates throughout the metropolitan area declined 50 basis points and drove nearly 696,000 square feet of positive absorption during the quarter.
At the same time, asking rental rates for Class A office space inched upward in both the city and suburbs, to $35.86 and $24.40 square per foot, respectively. More lower-rate subleases are being filled in the Loop, while prime Class A spaces are becoming harder to find, driving up asking prices.
The weighted average asking rate for Class A space in the Central Loop increased by 16 cents per square foot to $36.73 in the second quarter.
Approximately 3.5 million square feet of sublease space remained available in the Loop at the end of the quarter, down from 3.6 million during the prior quarter. This was offset by an increase of 146,000 square feet available for sublease in the Chicago suburbs.
Looking ahead, the office market is expected to continue improving through the end of the year, as large employers are anticipated to boost hiring. However, current tax laws are restraining new business development in Chicago, with no new major construction projects expected to break ground for the balance of 2011.
Analysis: The sluggish economy is still a major factor in the pace of the office market recovery. The principal stimulus for office space demand – job growth – was nonexistent in the second quarter, as the U.S. unemployment rate ticked up to 9.2 percent.
In Chicago, joblessness was even more pronounced, with an unemployment rate of 9.8 percent in June. Consequently, it is still too early to describe the office market as strong because of persistently high unemployment, rising delinquencies on CMBS loans and Chicago’s challenging tax laws.
INDUSTRIAL TRENDS HIGHLIGHTS
Vacancy in the Chicago metropolitan area dropped by 20 basis points during the second quarter ended June 30, to 11.1 percent from 11.3 percent, suggesting continued positive growth for the local industrial real estate market.
Many submarkets reported a continuing recovery in filling unoccupied spaces, with economic factors such as fuel costs, as well as location, contributing to second quarter leasing activity. In addition, some retailers were positioning themselves for future expansion, another positive indicator for that sector.
Also, LEED-certified buildings remained attractive to local tenants as a means of reducing expenses.
The Chicago metropolitan area posted 466,000 square feet of positive net absorption during the period, bringing the year-to-date total to nearly 4.4 million square feet absorbed, led by solid gains in the Fox Valley, I-55 Corridor and Central Will submarkets.
Asking rental rates averaged $3.91 per square foot for warehouse/distribution space, a very slight increase from the first quarter. Quarter-over-quarter, average asking rental rates dropped for general industrial and R&D/flex space, declining 10 cents and 47 cents to $4.26 and $7.95 per square foot, respectively.
Analysis: Overall, the industrial market is expected to show further progress over the balance of 2011. Manufacturing has contributed greatly to the economic recovery over the past two years.
The automotive industry continues to improve, with sales expected to increase by approximately 25 percent since 2009.
More deals for mid-size distribution space are anticipated, particularly in the retail sector, where demand for warehouse space has been on the rise as more and more consumers shift their preference to online shopping.
To access the full Chicago Metro Trends reports and other Grubb & Ellis research publications, visit www.grubb-ellis.com/research.
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