Investment sales activity cratered in Chicago in 2019

CRE transactions fell to $8B amid worries of sharp increases in property taxes, according to a new report

Sales of office, apartment, hotel and industrial buildings dropped by 50 percent in 2019.
Sales of office, apartment, hotel and industrial buildings dropped by 50 percent in 2019.

Investment sales activity plummeted last year in Chicago, as anxiety about a potential, significant increase in property taxes kept investors on the sidelines.

Sales of office, apartment, hotel and industrial buildings totaled $8.1 billion in 2019, compared to the post-recession peak of $16 billion in 2018, according to the Chicago Tribune, citing a new report by JLL. Office trades had the sharpest falloff, totaling $1.2 billion in transactions last year compared to $4.7 billion in 2018.

The total among all the markets is the lowest since 2013, when it was $7.5 billion, according to the report.

Chicago bucked the national trend, which saw sales volume rise 2.7 percent as a whole.

The results are further evidence of anticipated property tax increases in Cook County slowing commercial property sales, according to the Tribune.

“There was a lot of weakness because Chicago was exposed to property tax changes coming to Cook County, and all the uncertainty that comes with it,” Real Capital Analytics’ Jim Costello told the Tribune.

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A recent report from Cushman & Wakefield determined commercial landlords would likely see significant increases in their property assessments, which doesn’t necessarily mean a spike in taxes.

In July, a report in MB Real Estate showed investment sales of office buildings in the central business district had dipped to a 20-year-low.

Industrial real estate does remain a bright spot in the area, however, a trend that has continued into 2020.

Taxes aren’t the only challenges to overall investment sales activity, according to JLL. Others include the end of the construction boom cycle and potential policy changes, like increased affordable housing requirements and rent control.

But some industry pros see the slowdown in commercial property sales as a blip, rather than a long-term decline.

Chicago continues to attract companies from the suburbs and other cities, including big names like Amazon and Google, which have been in expansion mode in the Chicago area. Big firms like Sterling Bay, Related and 601W Companies continue to plow big money into the city.

JLL said that commercial real estate is generally far less expensive compared than the three top major markets of Boston, New York and San Francisco, the Tribune reported. [Tribune]Brianna Kelly