Industrial Real Estate Is on Track to Lead Chicago Property Sales for the Second Year in a Row
Year-to-Date Sales Showing Reversal of Previous Trends During Pandemic
Industrial real estate sales have outperformed all other property types in the Chicago area as the rest of the commercial sector continues to face uncertainty amid the coronavirus pandemic.
Industrial sales for the year have already reached nearly $2.4 billion in volume as of August. The increased adoption of online shopping, coupled with e-commerce’s penetration into previously difficult categories such as personal products and groceries, has increased demand for big-box, last-mile and cold-storage space in Chicago.
The retail sector, which has arguably been hit the hardest by the pandemic and subsequent social-distancing measures, so far managed to surpass year-to-date office sales for the second year in a row, with nearly $1.3 billion in sales activity recorded. While overall sales of retail properties have fallen substantially amid the pandemic, investors have continued to target single-tenant, net-leased grocery stores and essential retail, which have outperformed sales expectations during the public health crisis.
While 2019 saw multifamily sales surpass retail to become the second-highest performing sector of the year, things have played out differently as we move halfway into the third quarter of the year. Currently, multifamily properties have reached just under $1 billion in sales year to date.
While multifamily sales in Chicago tend to be highly seasonal, with stronger investment activity typically occurring in the back half of the year, some additional factors are expected to weigh on apartment sales throughout the year. First, the city of Chicago is set to be reassessed in 2021, and market expectations are that the relative tax burden on landlords will grow once the impact is felt in 2022. Thus, it is likely that Chicago’s apartment sales market will remain relatively slow for the foreseeable future, potentially well beyond the expected rebound in the national apartment market in mid-2021.
There has also been an additional pullback in office sales so far in 2020. Continuing a trend of limited investment activity in the Chicago office sector, roughly $870 million in activity recorded as of August. Although this is the lowest sales volume recorded out of all commercial property types year to date, the recent sale of the iconic “Big Red” building to SHVO and Deutsche Finance America for $376 million shows that interest for well-positioned, downtown properties still exists. However, it should be noted that negotiations for 333 S. Wabash Ave. began prior to the pandemic.