Lucky Number ’13: Predictions from the 2013 Forecast Conference

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Over 1,000 real estate professionals attended the 11th annual Commercial Real Estate Forecast Conference last month to hear the predictions for 2013 from the industry’s top real estate pros.

Beginning with a fireside chat featuring Christopher Kennedy, attendees learned the history of the Merchandise Mart and the progress of the Wolf Point development as well as Kennedy’s outlook for the future. Next up was the “Big Picture in Commercial Real Estate” panel which included MB Real Estate’s Andrew Davidson and several other commercial and industrial real estate execs. The panel discussed the 40 percent increase in sales volume from 2011 to 2012, also noting the lack of new construction. Panelists predicted more spec development taking place in 2013, cap rates continuing to compress and an increase in rental rates. Speakers presented a generally positive outlook and predicted growth, albeit slow.

Our own market research team forecasts the following for 2013:

Decreasing vacancy

· Direct vacancy fell 30 basis points to 15.1 percent in Q4 2012 for the second consecutive quarter, and each building class saw a decline in vacancy.
· River North, Central Loop, and West Loop submarkets outperformed the overall market again, with only the South Loop experiencing negative absorption.

Stagnant supply

· No new developments were announced this quarter.
· Hines has delayed its ground breaking on a 45-story, 900,000 square foot tower at 444 West Lake until the first quarter of 2013. Completion is still slated for mid-2016.

Continued downtown relocation

· Maximus, Presence Health, and Zones aare three newly-announced companies that will relocate to at least 20,000 square feet each in the CBD.
· The trend is expected to continue as the City of Chicago works to attract more companies downtown and employers seek talented recent grads that prefer to work downtown.

Rental rates are increasing and concessions are decreasing

· Class A rental rates for new transactions increased by 1 percent in Q4 2012 on a year-over-year basis.
· Q4 2012 average tenant improvement allowances fell 8.5 percent while average rent abatement declined by 7.1 percent..

Risks to growth

· Many offices have underutilized space which could offset the increased demand resulting from hiring growth.
· Increased corporate tax rates in Illinois and increased national tax rates discourage corporate expansion.
· Residual effects of the Eurozone crisis create a cautionary environment.

To read more, please see our Q4 2012 Chicago Market Overview and February MarketBeat here.

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