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CHICAGO-Greg Leisch, chief executive officer of Delta Associates, a research affiliate of Transwestern, told an audience of professionals Nov. 2 that he predicts the local commercial real estate industry in 2007 will mimic the second and third quarters of this year. He added that a landlord’s market will return for office and industrial property owners by 2008. Leisch spoke to a group of brokers, owners and developers at Transwestern’s 2006 Trendlines event at the downtown W Hotel.

He says the national economy has shown positive movement in the past quarter, such as unemployment dropping to 4.6%, gas prices at the lowest point in the past two years and the stock market trading above 12,000. “And, don’t forget, the Bears are 7-0,” joked Leisch. He admits there are some unsettling figures, such as the job market. However, he says Chicago’s market is higher than expected, at 51,000 new jobs this year, and is on track to average 65,000 new jobs each year for the next two years.

“About 75% of those jobs are high-paying professional jobs, which is why the office market in Chicago has made a faster-than-expected comeback,” Leisch says. “For the past few years, there’s been three million to six million sf of office built each year, whether it was needed or not, and some years there has been negative absorption. Now, we’re looking at the first time in years where we’ll have higher demand than available supply.” Office vacancy already dropped from 16.3% this time a year ago to 13.8% today. As office vacancy drops below 13%, the low end of what he calls the “equilibrium zone” due to positive absorption, rental rates should rise, Leisch says.

He says the industrial market will also see an upswing by 2008. Though the industrial market has been strong, demand has matched supply, and will continue to do so through the end of 2007, Leisch says. However, a continued demand for space will lower vacancy rates from 9.9% now to below the national average of 8.7%, and rental rates will rise by 2008, he says.

Leisch says Chicago is third largest industrial market, but admittedly, the area has a high proportion of obsolete space available. In a statement provided at the event, Transwestern is predicting that older, built-out urban areas in the Chicago industrial marketplace will be completely refurbished so that tenants can use existing utilities and infrastructure. For example, the Lisle-Naperville industrial market is doing much better than expected, as evidenced by class A and B deals such as US Bank and BIS Coalition at University of Illinois signing leases at the former Lucent campus, said Robert Bagguley, president of Transwestern’s Midwest Region.

Leisch was preceded on stage by Ronald Harvey, vice president of the Australian Olympic Committee, who had other words of hope for Chicago’s future. He discussed Chicago’s options for hosting the games in 2016 and what it could mean for the local economy. “The world attention is like hosting a Super Bowl each night for 17 nights,” Harvey says.

The games can be the catalyst to completing billions of dollars of local infrastructure improvements, business investment and future tourism dollars, he says. “Many people in Sydney thought when we were to host the games that it would be a waste, a white elephant, that we would only have short-term gain. Well, in 2005, we had 7.7 million visitors to our Olympic district,” Harvey says. “There are now 60 businesses and 6,000 workers located in the precinct, and six new building sites are under construction now with a development value of $550 million.”

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