CHICAGO—Last year was one of the best for Chicago's industrial real estate market in a long time and experts anticipate good news for this year as well. At this week's 13th Annual Commercial Real Estate Forecast Conference, sponsored by the Real Estate Publishing Group, many noted that the region has become one of the nation's top producers. But nobody seems to believe the market will begin overheating.

“We're still absorbing more than we are building,” Adam Moore, regional director for First Industrial Realty, told a morning panel on the industrial market. And recently published data bears that out.

As reported in GlobeSt.com, NGKF has just published its analysis on the fourth quarter, and found that about 11-million-square-feet of space was absorbed over 2014, and about 7.8 million-square-feet were delivered, pushing down vacancy to just 8.3%, the lowest level since 2006.

But however active developers have gotten, nothing approaching the building frenzy of the peak years is on the horizon. “We haven't seen a great land grab,” said Chris Zubel, managing director of CBRE Chicago's industrial practice group and another panelist. “I don't think we will see what we saw in 2007 when supply outstripped demand.”

John Coleman, executive vice president for industrial services at Transwestern agreed. He told conference attendees that even with the high level of speculative development going on in the region, he still has many clients looking for build-to-suit projects. “You'd think there would be an existing roof they could move under,” he said, but space is still limited in many areas.

Zubel pointed to the speculative project planned by Bridge Development Partners, LLC at the suburban Northlake property once used by the former Chicago-area Dominick's grocery chain. The Chicago-based developer plans to raze some obsolete structures there to make way for a new 588,284-square-foot distribution center featuring 36' clear ceiling heights. Zubel has heard that Bridge will soon find a buyer even though “it hasn't even been built yet.”

“To me, class B is the category where I see a lot of opportunity,” Zubel added. The sunken vacancy in class A has users checking out product that, while somewhat older and with perhaps lower ceilings, is perfectly serviceable. As a result, in many of these properties rental rates have risen to 2007 levels.

For example, the rise of the B market gave Brennan Investment Group, LLC, a private real estate investment firm in suburban Rosemont, the confidence to acquire for $164 million a 23-building, 4.68-million-square-foot industrial portfolio of largely B product spread out across the Chicago metro area. Steve Disse, principal of Colliers International, told GlobeSt.com that this deal illustrated that the class B “market has changed a lot in the last six months.” The increase in rental rates and a roughly 150 bps gap in the cap rates between A and B product means local investors can make real money in B properties.

Instant Insights /

Little Danger of Industrial Market Overheating

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