Top industrial markets across the U.S. saw big boosts in investment throughout 2018, and several of these regions, including Chicago, have seen the pace pick up even further in the first few weeks of 2019.
A market review by Avison Young’s Chicago-based national industrial capital markets group shows an increase in year-over-year sales activity through mid-February in core markets including Dallas (45.7%) and Chicago (30.4%). Sales volume dipped in the New Jersey/New York City area by 21.5%, and by 5% in Los Angeles. The company analyzed investment sales data provided by Real Capital Analytics.
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“The growth in e-commerce and corporate supply chain needs continues to fuel strong absorption and construction, which are positive barometers for the investment market,” Avison Young principal Erik Foster said.
The property type’s many strengths also led investors to begin setting their sights on new markets.
“There is still a focus on Chicago, but because of the availability of capital, and the need to secure higher yields, many buyers are looking at markets beyond the top five,” Foster said.
Two secondary markets reviewed by Avison Young showed significant gains: Indianapolis posted a 224.7% increase in year-over-year sales activity through February, and Charlotte registered an 87.7% gain.
Charlotte’s average price per square foot has even started to beat out core markets like Dallas and Chicago. In the fourth quarter of 2018, investors paid an average of $84/SF for Charlotte properties, compared to $74 and $64, respectively, for properties in Dallas and Chicago, but still far behind the $133 paid in Los Angeles.
In 2018 investors spent $6.4B on industrial properties in the Chicago region, a 44.3% increase over 2017, and more Chicago properties are changing hands through portfolio sales, Avison Young found. The $470M in 2019 Chicago sales was for 51 properties, totaling about 7M SF. Of that, $244M was spent on portfolio buys — a 100% increase year over year — and $225M was for individual sales, a 10.3% decrease year over year.
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One of the most notable investments this year in Chicago was Toronto-based Dream Industrial’s $179M purchase of a 21-building, 3.5M SF portfolio in multiple markets, including four Chicago buildings totaling 1.26M SF, from Transwestern Investment Group. The Chicago buildings are 301-363 North Third Ave. in Des Plaines, 3800 Sunset Avenue in Waukegan, 5100 West 123rd St. in Alsip and 5300 Proviso Drive in Melrose Park.
Foster expects to see many such portfolio sales this year, as it is the only way for investors to place huge amounts of money into the marketplace quickly, and satisfy investors' demand for industrial product.
“The demand for industrial product is the highest it’s ever been,” he said.