The Real Deal Chicago

Record-high industrial investment sales forecast for 2018: report

Some $2.8B in industrial properties have already traded hands this year
By Joe Ward | October 08, 2018 05:00PM

(Credit: iStock)

With vacancy rates dropping and rents jumping, investment sales of Chicago-area industrial properties could set a new record this year.

Through September, the local industrial market saw $2.8 billion in investment sales, which is $447 million ahead of the total at the end of September 2017, according to Newmark Knight Frank’s third quarter study of the market. If the market keeps this pace, it could set a record for the most industrial investment sales activity in one year, according to the report.

The latest third-quarter numbers continue to show Chicago’s industrial market is reaching highs not seen in a decade, and is one of the hottest industrial markets in the country.

Vacancy rates in the sector fell to 7.8 percent, the first time they have dipped below 8 percent in a year, according to the study. In response, rents have reached a record high of $5.43 per square foot, a 4 percent increase year-over-year. And the 4.92 million square feet of absorption is the most in a single quarter since 2016.

“The Chicago industrial market has been so strong for so long that many people are looking for signs of a slowdown but are not yet seeing them,” the report said.

Leading the way for industrial sales this quarter was the sale of an Elk Grove Village data center for $118.9 million to IPI Partners. Last week, Dayton Street Partners picked up a 42-acre industrial property in the South Suburban for $31.5 million.

Though industrial construction delivery tapered to 2.2 million square feet in the third quarter, there are a number of projects eager to cash in on the hot market. There were 19 construction starts in the third quarter, totaling 6.2 million square feet of new industrial space.

The largest of those projects is Venture One Real Estate’s 1.3-million-square-foot warehouse in a business park along the Interstate 55 corridor. And three industrial developers announced plans to build three new facilities totaling more than 1 million square feet in the Western Suburbs.

The construction starts show developers and investors are still bullish on Chicago’s industrial sector, but the next test for the market will be how it handles the constant influx of new product, according to the report.

“While this stat shows the continued strength and confidence investors have in the Chicago industrial market, it is a lot of new space for the market to absorb in 2018,” it said.