Market Data

Land of Lincoln Is Looking Good

Due to its “robust economic development activity from Chicagoland to the juncture of the Ohio and Mississippi Rivers,” Illinois was named the top state for business development in 2001 by Site Selection magazine. The state ranked first in three criteria categories: capital investment in new and expanded facilities, new jobs created, and number of top 100 small towns in the annual national ranking.

Illinois' diverse economy encompasses a vast range of industries, allowing it to weather economic fluctuations with relative ease and making it an attractive destination for real estate and business developers alike.

Multifamily Moves Along Rockford, a city of about 268,000 people in north central Illinois, attracts newcomers with its rolling hills, forest preserves, and friendly atmosphere. Its low cost of living also earns rave reviews. “We can build at prices never dreamed of in Chicago,” says Dennis J. Gillig, CCIM, ALC, of Liberty Real Estate Group in Arlington Heights.

Rockford's economy “seems to be doing well,” he says, and the multifamily market's occupancy rate -- which Gillig estimates at 90 percent to 95 percent -- reflects the city's good fortune. The area is experiencing heavy speculative construction: Gillig's company has completed 36 upscale units and plans to start building 20 to 30 more this year. About 500 additional units have been proposed by other developers. “Lease rates on what we are building are stable, since we want them to be filled,” he says. “After the last phase goes in, we will move them up. We were aggressive at the start with pricing and get 75 cents per square foot.”

Gillig doesn't anticipate drastic changes in the Rockford multifamily market in the near future. “We think the hot areas are the areas the experts don't know about. Thus we go into submarkets,” he concludes.

Industrial Hangs On The fertile Fox Valley region approximately 40 miles west of Chicago encompasses Illinois' third-largest city, Aurora, and the Interstate 88 high-tech corridor. Although “a number of large companies [in the high-tech corridor] have laid off workers and some large industrial buildings have come on the market ... in the Fox Valley area there does not seem to have been any major layoffs, and the industrial sector has remained steady,” says Steve Stephens, CCIM, of Stephens Commercial Real Estate in Aurora.

Newer industrial properties under 100,000 square feet have maintained steady occupancy by leasing at the lower end of the range, averaging $4.25 psf to $4.75 psf triple net. However, sales activity practically has halted. The events of last September “effected a mind change in that users have decided to lease with an option to purchase at a later date rather than to do a straightforward sale,” Stephens surmises. He foresees a slowdown of spec construction and a short-lived tightening of the Midwest industrial market. Yet the I-88 corridor will continue to be a hot market as “manufacturers continue their exodus from the Chicago and Cook County areas both for economic (lower real estate taxes and operating costs) and perceived dispersion for safety factors,” he says.

Downsizing and the sluggish economy also have hit the industrial market around O'Hare International Airport. “The activity seems to come and go in waves -- demand for space larger than 40,000 sf is poor,” reports Mark Baumhart, CCIM, of Arthur J. Rogers and Co. in Elk Grove Village. “Users seeking to purchase buildings in the 5,000-sf to 20,000-sf range appear to be stagnant. Two years ago buildings in this size range would sell in 30 to 60 days. Now some are on the market for more than six to nine months.”

Lease rates average $6.75 psf to $7.50 psf gross for properties up to 10,000 sf. Although properties in the 40,000-sf to 60,000-sf range could get $5.75 psf to $6 psf a few years ago, they now lease for approximately $5.25 psf, Baumhart says. “I think it will take 12 to 18 months to absorb the vacancy created as a result of the recession and Sept. 11. Specialties will be buildings with high parking ratios and expansion opportunities. Hot areas will continue to be infill sites in the O'Hare area and Kane County.”

Retail Remains Strong Bloomington-Normal, referred to as the Twin Cities of Illinois, is home to many major employers including Illinois State and Illinois Wesleyan universities, Mitsubishi Motor Manufacturing of America, State Farm Insurance, and GE. Due to this wealth of industry, the area is experiencing low unemployment and a strong economy, reports Mark Gerard de Veer, CCIM, of Prudential, Snyder/Armstrong Realty.

The retail market also is strong. “Leasing activity is picking up, and many long vacancies are starting to be filled,” de Veer says. “Many national companies have developed new sites in town or expanded existing ones within the past five years.” For example, Menards moved from an 80,000-sf site to a 120,000-sf site; Lowe's Home Improvement Warehouse recently opened a 150,000-sf store; and Wal-Mart is planning a second 150,000-sf supercenter. Occupancy rates are better than 95 percent in anchored centers and range from 90 percent to 95 percent in unanchored strip centers, he says.

Due to an increase in home sales, de Veer believes that the Bloomington-Normal retail market should continue to expand. However, “An oversupply stage may occur in big and medium-sized boxes as the national [companies] continue to develop new sites locally,” he says.

Office Struggles to Stay Afloat Although Chicago's economy “is not that bad,” occupancies, lease rates, and sales prices are decreasing and new construction is stagnant, according to Wayne Shulman, CCIM, of HSA Commercial. “Activity is not quite at a standstill but it is very slow. Tenants are ... trying to take advantage of the softness,” he says. Landlords are being forced to offer rent abatements and lower lease rates to remain occupied. Average lease rates have dropped from 50 cents psf to $2 psf, and some sublease space is being discounted nearly 50 percent, he reports.

“If the economy comes back as expected, office will be fine downtown but will take some time to recover in the suburbs because of huge oversupply and subleases. Class B and C properties will hurt downtown if the value is not obvious for the tenants,” Shulman concludes.

Market Glance
San Antonio Saddles Up

Despite numerous attractions such as the Alamo and Sea World, the tourism industry of San Antonio, Texas, took a slight hit at the end of 2001. However, “the city's diverse economy still netted an annual increase of 12,500 jobs, which reflects a growth rate of 1.7 percent,” according to Todd A. Gold, CCIM, and Brian D. Harris, CCIM, of REOC Partners.

Office. Lease rates for class A space average $21.10 per square foot, Gold and Harris say. “Quoted rents, however, do not reflect the concealed trend of rental concessions, which come mostly in the form of one or two months free rent,” they continue. Six speculative projects totaling 405,500 square feet were completed last year, yet only 58 percent of the space was occupied by year-end, contributing to a slowdown in the development pipeline, they report.

Industrial. The total market inventory is nearly 71.5 million sf, of which approximately 88 percent is occupied, reports Stephen M. Soble, CCIM, SIOR, of Ernest Soble Commercial Properties. Lease rates have stabilized after rising steadily for the past few years. “User buildings continue to dominate new construction, with spec development on a very selective basis,” Soble says.

Retail. “There has been a tremendous amount of activity in all sectors of retail, leasing, purchase of land, and new construction,” reports Silvia G. Gangel, CCIM, of SiGa International Real Estate. A great deal of construction is occurring, primarily power centers and large shopping centers. Due to this activity, occupancy rates have held stable at 85 percent for the last year, and lease rates have remained around $10 psf to $12 psf, she says.

Multifamily. “A recent survey named San Antonio as one of the five most attractive places to invest in multifamily housing,” says R. Ben Henderson, CCIM, of USAA Real Estate Co. At the end of 2001, luxury units were 94.7 percent occupied, and the affordable market was 97 percent occupied due to “high demand by low-income renters,” he says. 


Building Progress

Fall 2020

Moody's Analytics Reis Chief Economist Victor Calanog, Phd, CRE, outlines how construction in many sectors will fail to meet expectations for 2020.

Read More

This Is the Altered Normal

Fall 2020

Esri’s data on consumer behavior, demographics, and employment can help real estate adapt in the COVID-19 world.

Read More

Market Trends in Commercial Real Estate

Summer 2020

Office Renters Change Priorities in Wake of Pandemic | Recreational Real Estate on the Rise | Case Study: COVID-19's Impact on Eastern PA Big-Box Market | Hospitality Owners Have Reservations as Occupancy Drop | Seniors Housing Responds to Mounting Pressure from Pandemic | Mixed-Use Developments Can Keep It Local | Supply Chain Reacts to Social Distancing | Self-Storage Weathers Early COVID-19 Storm

Read More

The CMBS Stress Test

Summer 2020

The commercial mortgage-backed securities market is particularly vulnerable amid the COVID-19 pandemic, with borrowers and lenders looking for creative solutions to unprecedented problems.

Read More