Navigating the Industrial Real Estate Market

There is a lot of discussion from experienced industrial real estate brokers about the scarcity of industrial space. Nationally, the industrial space market continues to break records with 240 million square feet of net absorption over the last five years. As national vacancy rates fell to 4.8 percent and real estate brokers experienced 34 consecutive months of declining availability, the industrial market is the tightest on record.

O’hare and Lake County Industrial Market is Red Hot!

Chicagoland industrial market experienced its 33^rd consecutive quarter of positive net absorption. As a result of increasing demand and limited supply, the vacancy rate is now hovering around 3.5%. Demand for industrial spaces over 50,000 square feet is especially high with more prospective tenants in the market than space available. Moreover, the O’Hare and Lake County sub-markets surpass Chicago as a whole with a vacancy rate of 2.3%. Furthermore, with anxiety over trade and labor issues holding back the supply of industrial real estate, continued low industrial vacancy rates seem likely.

The tight market has fueled a rapid and sustained rise in the cost of leasing industrial space. Since rent is typically a major line item for most companies, businesses are beginning to feel the vacancy shortages impact on profitability. However, for businesses looking to escape high rents, sale prices offer no relief as in many of Lake County’s sub-markets they have outpaced rents. As available property with desirable square footage and specifications nears zero, expect prices to increase.

Functionally Obsolete Product Tests Buyers and Tenants

In addition to low vacancy rates, finding functional industrial spaces that meet a clients specifications in the market is increasingly challenging. A disproportionate share of available inventory offered for sale or lease in Illinois is older and functionally obsolete. As a result, many businesses are left without good opportunities to upgrade end up renewing existing leases that may no longer fit their needs.

Solutions for Successfully Navigating the Marketplace

Although there is no guaranteed solution, understanding the industrial marketplace is a challenge for buyers and tenants is an essential first step. After accepting the difficulties of the marketplace, starting your search early is critical. Moreover, when the right building hits the market it is vital your business is ready to pull the trigger.