CHICAGO — Northern Illinois can expect fewer empty storefronts in 2012. Renters will have fewer vacant apartments from which to choose and should expect to pay more to rent the units that are on the market. But we should not expect many new office buildings or strip malls to rise in the area this year, according to a survey of commercial brokers affiliated with the RE/MAX Northern Illinois real estate network.
Those RE/MAX agents say the regional commercial real estate market remains a challenging one, with little new development taking place. They are, however, seeing signs of hope in the local commercial market, especially in the red-hot multi-family sector.
And these agents expect commercial real estate activity — leases and sales — to increase at a faster rate as the national and local economies continue to improve, a view supported by the latest research on the commercial real estate market. This is good news for northern Illinois residents — a strong commercial real estate industry means more jobs.
“We are very optimistic about commercial real estate,” said Dave Shalabi, a top commercial real estate agent with RE/MAX Synergy in Orland Park, Ill. “I feel the leasing market is starting to correct itself because of the lower rental rates that commercial tenants have to pay today. Simply put, they are getting good deals, and that’s encouraging them to lease new, improved space. We are also optimistic that the improving economy is bringing people out of the woodwork to make decisions on investing in commercial real estate.”
Shalabi’s view is supported by the latest research from the National Association of Realtors. The association’s most recent quarterly commercial real estate forecast reported that all of the major commercial real estate sectors — multi-family, retail, office and industrial — are seeing improvements across the country.
Lawrence Yun, the chief economist for the association, said vacancies are falling for retail space, office buildings, industrial properties and apartment buildings, thanks largely to improvements in the national unemployment rate.
“Sustained job creation is benefiting commercial real estate sectors by increasing demand for space,” Yun said in a written statement. “Vacancy rates are steadily falling. Leasing is on the rise, and rents are showing signs of strengthening.”
Positive signs are evident in Chicago and its suburbs, too, according to the latest research from Marcus & Millichap Real Estate Investment Services. The company predicts retail vacancy rates will fall 0.6 percent to 10.6 percent in 2012. At the same time, retail landlords will be able to command higher rents this year, with effective retail rents in the Chicago area rising 1.6 percent in 2012 to $16.31 a square foot.
Marcus & Millichap also predicts multi-family vacancies in the Chicago area will fall to 4.2 percent this year, while average effective rents will jump 4.8 percent to $1,055 a month.
According to Bradley Burns, a commercial broker with RE/MAX Experience in Sycamore, Ill., buyers today are looking for outstanding values when it comes to commercial real estate. And, in Burns’ experience, they are finding them.
“There are definitely buyers out there today for commercial properties,” Burns said. “They know this is a good time to buy commercial real estate, that they can find great prices on properties. There is some commercial real estate selling, but it is selling at a discounted price.”
Backing up the national and local research, Burns says multi-family remains the strongest commercial real estate type today. Rents are up and vacancies down in the multi-family properties in his region, Burns said.
“We have a good market for apartments, with Northern Illinois University here,” Burns said, referring to the DeKalb County area in north central Illinois.
Burns recently sold a 192-unit apartment complex in DeKalb, Ill. The purchasers of the building, who Burns represented in the transaction, invested additional funds to improve the property and have now reduced their vacancies to zero.
Deepika Syal, a commercial broker with RE/MAX United in Wheeling, Ill., said commercial real estate buyers and developers still face challenges. The biggest of these is in getting funding for the purchases they want to make or the projects they want to build.
“Lenders are looking very carefully before giving money to projects today,” Syal said. “That has been a major change from the past. It also takes longer to close a deal today.”
Syal is logging longer hours to help her commercial clients navigate this still-challenging commercial real estate market.
“You have to work five times harder than before,” Syal said. “That’s what you have to do to succeed. It’s just a changing market out there.”
John Rosengren, a commercial broker with RE/MAX Sauk Valley in Sterling, Ill., said the best way to succeed in today’s commercial real estate market is to provide top service to clients.
For Rosengren, this means researching the local market and getting clients the information they need to make informed leasing or buying decisions. Rosengren provides his clients with a range of data, including local demographics, traffic patterns, rental information and cost surveys, everything they need to make an informed decision before leasing or buying space in a shopping center or office building.
“It’s all about giving people the right advice,” Rosengren said. “Some clients don’t need to be located in a high-end retail center. Some can be in a secondary location and do just as well, and they’ll save money in rent. A lot of people think they need the location next to Walgreens and McDonald’s. But often they can do just as well by finding space in an area with lower rents. Those are the kinds of decisions that I help my clients make.”
Shalabi, who has seen steady business in the multi-family and medical sectors, agrees today’s commercial buyers and sellers expect top service from their real estate representatives. But this is nothing new, he said; clients always expect to receive solid information and strong representation from their commercial brokers, in both good times and challenging ones.
“Our clients have been happy over the years with us,” Shalabi said. “We can deliver on what we say. We never make a promise we can’t keep. To be good on your word is extremely important. We get tons of referrals thanks to that approach.”
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From the March 28-April 3, 2012, issue