It was a banner year in Chicago real estate, with record-setting deals, constant construction and eye-popping numbers across several sectors, ranging from office and retail to multifamily and industrial. We asked local real estate pros to highlight the defining trends of 2015.
Retail
Quantum Real Estate Advisors president Chad Firsel says retail pricing rose in a disciplined manner across core and core-plus shopping centers in all markets. Q3 and Q4, especially, were very good for investor demand in secondary and tertiary markets. Chad says the “Mariano’s effect” (shopping centers anchored by supermarkets garnering large prices) resulted in rich rents for owners. There’s a large influx of grocers to the market that hasn’t been seen in years. One area of weak performance: non-regional shopping centers. Malls without an anchor tenant have been very hard to move.
Multifamily
Luxury Living Chicago managing broker Aaron Galvin (left, snapped with Luxury Living’s Amy Galvin and Jacob Kosior) says 2015 set the stage for downtown-style multifamily developments to make their way into surrounding neighborhoods like Wicker Park, Bucktown, Logan Square and Lakeview. In past cycles, these projects would have all been condos but the “renter by choice” philosophy and demand for high-end rental properties with luxe finishes and amenities away from downtown is the beginning of a new race for development away from the city's center.
Construction Costs
CBRE director Abe Gamboa says material costs rose dramatically in 2015, and will continue into 2016, due to a lack of availability. Glass demand led the charge, but there were also significant increases in pre-fab materials that suppliers only stock on a per-order basis, such as doors and light fixtures. This is a continuing precautionary measure stemming from the ’08 market crash. Abe adds that developers are agreeing to terms with contractors and subcontractors early in the construction process, which is necessary in order to keep pace. This has resulted in the best crews being tied to major projects sooner and developers reaching out to contractors in Kane and McHenry counties in order to fill their open jobs.
Industrial Development
Darwin Realty director Adam Haefner says the industrial market performed fabulously this year. There was declining vacancy, positive absorption and rent growth across all submarkets. Overall, developers remained disciplined on new construction. 2015 was a record year for investment sales, spurred by mega-transactions, including the IndCor, KTR and IIT acquisitions.
Office
BOMA Chicago president TJ Brookover says the combination of large employers moving to downtown, no delivery of new office space and adaptive reuse conversions all helped lower vacancy rates in the CBD this year. TJ adds there was a rise in backfills as companies signed leases for office space in the pipeline and created holes in existing product.
Hospitality
The influx of lifestyle hotels was the defining trend of 2015, according to Oxford Capital Group CEO John Rutledge (who spoke at our hotel development and investment panel earlier this month). Projects like the Chicago Athletic Association Hotel, Acme Hotel and Chicago Motor Club have transformed downtown into a series of unique destination spots and a critical mass is fast approaching. Meanwhile, capital markets remained disciplined and there is plenty of available funding for well-conceived projects.
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