2015 was a big year for industrial investment, spurred by mega-transactions like the IIT, IndCor and KTR acquisitions. JLL EVP Sean Devaney says there are a variety of reasons Chicago, the nation's second-largest industrial market, remains one of the nation’s hotbeds for investment.
Sean says Chicago is mimicking national trends in industrial real estate with strong fundamentals, and was a low-5 cap rate market last year. While O’Hare is still the epicenter for industrial, other submarkets, such as I-55, I-88 and central DuPage, present great investment and development opportunities.
The Chicago market continues to experience cap rate compression and prices very efficiently, with a wide variety of interested investors and developers looking to either enter the market or expand their holdings. As interest rates rise, cap rates will begin to normalize. With growing rents, however, price per SF will continue to trend upward, something Sean does not see changing anytime soon.
Industrial is finally on the radar of Asian investors, led last year by Singaporean firms, which were instrumental in the IIT and IndCor transactions. Sean expects the trend to continue as other investors follow the lead of their counterparts. JLL continues to talk with other Asian investors in an effort to find opportunities that provide sufficient scale and quality. While foreign capital demand continues to grow, domestic investors remain aggressive in deployment, led by institutional advisors and funds. With limited supply of core opportunities, Sean expects pricing to continue to tighten.
Sean says banks and other institutional lenders are actively looking to increase allocations within the industrial market and providing favorable terms and flexibility to investors, which is helping to drive pricing. Lenders are gravitating toward quality multi-tenancy portfolios with homogenous characteristics. The activity is trickling down to secondary and tertiary markets. Sean, JLL director John Huguenard and SVP Ed Halaburt recently repped the seller of an eight-building, 4M SF Class-A industrial portfolio in Indianapolis . Biynah Industrial Partners and Olympus Ventures paid $167M for the assets.
