Midwest Real Estate News March April 2010 : Page 1

midwest WWW.REJOURNALS.COM Lakeview XII, CenterPoint Properties by Dan Rafter, Editor David Harker doesn’t expect 2010 to be anything near a boomyear for the commercial industrialmarket. But Harker, executive vice president in the Chicago office of First Industrial Realty Trust, does hope to one day look at back at this year as one of recovery for the Midwest’s commercial real estate industry. “Things are getting better,” he said. “Obviously, industrial real estate demand lags GDP growth, so any strong recovery will take a while. There is still a lot of empty space out there to be filled in the industrial market. We do have to work through all of those avail- abilities, but we think that absorption will turn positive in the last half of this year.” Harker isn’t alone in his optimism. Financial ana- lysts are pointing to industrial as a likely candidate for one of the first commercial real estate sectors to recover from the nation’s long economic slump. And in the Midwest, several markets have already shown signs that their industrial markets are slowly recovering. Unfortunately, the keyword there is “slowly.” Those who expect a quick recovery for the Midwest’s indus- trial market in 2010 will be disappointed. “We are seeing leasing deals get consummated. We are seeing some demand for industrial space,” said Michael Murphy, executive vice president of the devel- opment department at CenterPoint Properties in the Chicago suburb ofOak Brook, Ill. “Of course, rents have dropped. It’s a very competitive marketplace for those deals that are getting done.” The numbers TheMidwest industrialmarket isn’t exactly thriving these days. But it’s not dying, either. At least that’s themessage one gets when reading NAI Global’smarket report of industrial activity in 2009. Last year, the national average vacancy rate for bulk warehouse space stood at 11.1 percent. That’s the highest that figure has been for five years. At the same time, though, the national average rental rates for these properties dropped by only 1.3 percent to $4.57 a square foot. Again, those aren’t blockbuster numbers.But they’re not nearly as bad as, for example, the numbers that the retail or office sectors experienced in 2009. Harker, from First Industrial Realty Trust, said that there are signs of hope in most of the markets that he oversees. “We are seeing good leasing activity inmost of the markets now,” Harker said. “Rates are low now and there is a lot of competing space. Clearly there is no Topeka Holding strong in Kansas capital Page 18 R E A L E S T A T E N E W S® THE DAKOTAS | ILLINOIS | INDIANA | IOWA | KANSAS | KENTUCKY | MICHIGAN | MINNESOTA | MISSOURI | NEBRASKA | OHIO | TENNESSEE | WISCONSIN MARCH/APRIL 2010 VOLUME 26, ISSUE 2 Industrial outlook: It’s a recovery year development. Itwill be years before a newspec building gets built in most of these markets.” The industrialmarket is unusual today in that there are plenty of potential investors. Unfortunately, these investors don’t have any products in which to sink their dollars. It’s all added up to a bit of a frustrating market. “As far as acquisition and capital market activity, there is very little going on right now,” Harker said. “There is a lot of money out there looking for anything, good deals, poor deals, whatever. There is just very little product on the market. People are just not selling. There is certainly not the high level of distress activity that people were anticipating in this market.” This lack of deal activity has resulted in negative absorption in the industrial market. Because of this, speculative development has all but disappeared in the industrial sector, Harker said. And this is something that shows no sign of easing up anytime soon, he said. “There is just not enough deal activity,” Harker said. “We have people who were caught in this cycle continued on page 27

Industrial Holding Its Own

Dan Rafter

David Harker doesn’t expect 2010 to be anything near a boom year for the commercial industrial market.<br /> <br /> But Harker, executive vice president in the Chicago office of First Industrial Realty Trust, does hope to one day look at back at this year as one of recovery for the Midwest’s commercial real estate industry.<br /> <br /> “Things are getting better,” he said. “Obviously, industrial real estate demand lags GDP growth, so any strong recovery will take a while. There is still a lot of empty space out there to be filled in the industrial market. We do have to work through all of those availabilities, but we think that absorption will turn positive in the last half of this year.” Harker isn’t alone in his optimism. Financial analysts are pointing to industrial as a likely candidate for one of the first commercial real estate sectors to recover from the nation’s long economic slump.<br /> <br /> And in the Midwest, several markets have already shown signs that their industrial markets are slowly recovering.<br /> <br /> Unfortunately, the key word there is “slowly.” Those who expect a quick recovery for the Midwest’s industrial market in 2010 will be disappointed.<br /> <br /> “We are seeing leasing deals get consummated.<br /> <br /> We are seeing some demand for industrial space,” said Michael Murphy, executive vice president of the development department at CenterPoint Properties in the Chicago suburb of Oak Brook, Ill. “Of course, rents have dropped. It’s a very competitive marketplace for those deals that are getting done.” The numbers The Midwest industrial market isn’t exactly thriving these days. But it’s not dying, either.<br /> <br /> At least that’s the message one gets when reading NAI Global’s market report of industrial activity in 2009.<br /> <br /> Last year, the national average vacancy rate for bulk warehouse space stood at 11.1 percent. That’s the highest that figure has been for five years.<br /> <br /> At the same time, though, the national average rental rates for these properties dropped by only 1.3 percent to $4.57 a square foot.<br /> <br /> Again, those aren’t blockbuster numbers. But they’re not nearly as bad as, for example, the numbers that the retail or office sectors experienced in 2009.<br /> <br /> Harker, from First Industrial Realty Trust, said that there are signs of hope in most of the markets that he oversees.<br /> <br /> “We are seeing good leasing activity in most of the markets now,” Harker said. “Rates are low now and there is a lot of competing space. Clearly there is no Development. It will be years before a new spec building gets built in most of these markets.” The industrial market is unusual today in that there are plenty of potential investors. Unfortunately, these investors don’t have any products in which to sink their dollars. It’s all added up to a bit of a frustrating market. “As far as acquisition and capital market activity, there is very little going on right now,” Harker said. “There is a lot of money out there looking for anything, good deals, poor deals, whatever. There is just very little product on the market. People are just not selling. There is certainly not the high level of distress activity that people were anticipating in this market.” This lack of deal activity has resulted in negative absorption in the industrial market. Because of this, speculative development has all but disappeared in the industrial sector, Harker said. And this is something that shows no sign of easing up anytime soon, he said. “There is just not enough deal activity,” Harker said. “We have people who were caught in this cycle With vacant space that they have been sitting on for a long while. They are very aggressive when it comes to making a deal. The rates are extremely competitive. But in the analysis that we are looking at, effective rates have to double before speculative development makes sense. That is all a function of the economy, how long it takes to absorb the space that is already out there.” Financing freeze starting to thaw? In a bit of good news, Harker said that financing for industrial projects is easier to find now than it was just six months earlier. “The debt markets have loosened up significantly, not for new projects, necessarily, but for stabilized projects,” Harker said. Harker said that First Industrial Realty Trust added $240 million of secured financing on its properties in 2009. “Therewas always financing out there for well-leased, stabilized properties,” he said. “You had to have everything in place for the lenders, but the financing was there for solid, stable projects.” Solid markets The Midwest industrial markets are largelymirroring industrial sectors across the country, Harker said. He pointed to Minneapolis and Chicago as the strongest industrial markets in the Midwest today. “If any market is ever going to do better than the national average, it is Minneapolis,” Harker said. “It’s a smaller market with more high-tech uses, so it usually stays pretty stable.” Murphy, from CenterPoint, said that his company has already seen solid activity in 2010. The hope is that this is a good sign for the rest of the year. “I think 2010 is going to be a better year than 2009 on the leasing and development front,” he said. “I don’t think it’s going to be a great year.We are not going back to our 2006 and 2007 numbers. But there is going to be a firming of the market, more demand. I think 2011 and 2012 will be better years for the recovery. This year is more of a bottom and a strengthening type of year.” Murphy pointed to his own company as an example. CenterPoint has already worked out a lease in Pleasant Prairie, Wis., and two deals inMcCook, Ill. On the build-to-suit side, CenterPoint signed an agreement to develop a new building in the CenterPoint Intermodal Center in Joliet, Ill. That building, when complete, will total 220,000 square feet. “I think that the one part of the business that has been interesting is the acquisition and disposition part,”Murphy said. “I am starting to see some assets that are in trouble having the keys taken back by lenders. Some of that is flowing through the system now.” Murphy said that he expects Center- Point to be active in today’s industrial market. That includes new acquisitions. “We’ve made some purchases already, and we’re looking at continuing to do that,” Murphy said. “We are looking to purchase quality real estate with quality tenants at reasonably aggressive cap rates. The quality stuff with quality tenants is going at a reasonable price. Anything, though, that doesn’t meet those two criteria is suffering. It’s almost not trading.”

Re Journal

 

Loading