Industrial Vacancy Lowest Since Early 2009

(Crain’s) — The slowing economy isn’t slowing down the local market for industrial real estate.

The vacancy rate for Chicago-area industrial property fell to 11.3% in the third quarter, down from 11.8% in the second quarter and 12% a year earlier, according to Colliers International. It was the lowest local vacancy rate since first-quarter 2009

Net absorption, a key demand gauge representing the change in the amount of lease and occupied space compared with the previous three-month period, was nearly 5 million square feet. That increase, the largest jump in one period since the final quarter of 2007, followed two quarters of negative absorption.

“The pent-up demand from the last several years finally came to fruition as companies felt comfortable taking on expansion projects,” says David Bercu, a principal in Colliers’ Rosemont office. “They were embraced by landlords who had space sitting empty and were aggressive in their lease and sale proposals. The pent-up demand had to be satisfied at some point.”

Much of the third-quarter boost came from 16 transactions of more than 200,000 square feet — 10 leases and six building sales. Mr. Bercu believes that reflects larger companies’ ability to weather tough economic times.

“The larger companies have been very conservative over the last few years and have cash on hand,” he says. “They’ve ridden out the storm and now feel comfortable doing larger projects. I’m not sure the smaller companies have that same level of confidence.”

Indeed, the flagging economy has knocked the confidence of many companies, fueling worries that the current recovery in the real estate market may stall out.

“I do think that Washington and partisan politics needs to be resolved,” Mr. Bercu says. “It’s creating an environment of uncertainty for businesses. The gridlock has to be resolved.”

After the flurry of transactions in the third quarter, Mr. Bercu expects more of a gradual decrease in supply in the year’s final three months. And while industrial vacancies and absorption are improving, rents are still well below pre-recession levels.

Yet Mark Goode, principal at Venture One Real Estate LLC, remains optimistic. The Lincolnshire-based firm has acquired 12 Chicago-area industrial buildings and launched two new developments in the past year near the Chicago area. He says he has seen more companies scouting industrial space in recent months.

“You’ve seen companies that have been wanting to grow and expand, but you’re coming out of a major recession,” Mr. Goode says. “Now we’re seeing larger spaces being absorbed.”

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He anticipates increased assembling and manufacturing in the Midwest, and Chicago is traditionally a strong market in the industrial real estate sector.

“If manufacturing and productivity are going to continue improving in the United States, the Midwest is the best place to facilitate that,” Mr. Goode says. “We have the labor force and the location, and I think the growth is going to continue.”