What's Going On?

What’s Going On? In the immortal words of Marvin Gaye, everyone wants to know what’s going on with the economy. The truth is no one knows whether we are heading for a double dip recession or whether the economy will continue to grow sluggishly. How has this uncertainty affected the industrial real estate market in the Chicago Metropolitan Area (CMA)?

First, a little history. From January 1, 2008 through March 31, 2010, the CMA experienced 9 straight quarters of negative absorption and increasing vacancy rates. This increase in vacancy rates and the negative absorption figures were historically bad. Net absorption was negative 37 million SF over that time and the vacancy rate climbed 43% from 8.58% at the end of 2007 to 12.27% at the end of the first quarter of 2010. Vacant industrial space grew from 109,496,780 SF at the end of 2007 to 156,272,602 SF at the end of the First Quarter of 2010.

Lease and sale pricing has dropped 35 to 40% for users of industrial property since the peak year of 2007.

The tide turned in the Second Quarter of 2010. Net Absorption was positive 2,000,000 SF. We predict net absorption will be positive again in the Third Quarter of 2010. Owners of property report more property tours by prospective tenants. Many owners believe that demand is back and property values are coming back. The great leasing deals available in 2009 are no longer available.

And yet, what is really going on? The recovery is jobless, growth is positive but GDP growth is less than 2%. New job creation is hampered by new laws passed by Congress. This property market recovery could disappear like smoke.

Good deals are still available, especially for vacant space and for shorter term deals. Lease renewals should still be pursued, but a tenants need to wait until 12-18 months prior to their lease expiration. No longer can you get a great deal with two years left on your lease.

Call us for a free consultation on your lease situation.