Suburban industrial market shows steady growth

Chicago's suburban industrial market continues to show steady growth, with many small to mid-sized businesses expanding their operations and looking for additional space.

This is particularly true in the distribution, light manufacturing, assembly, and construction related sectors, which all have seen solid improvements during the past few years.

While the economic outlook is positive, this growth is presenting challenges for tenants. As vacancy rates remain low, many tenants today are hard pressed to find quality spaces. Buildings that are well located and maintained are becoming more and more difficult to find.

This shortage of space is occurring throughout the suburban market, with the O'Hare and surrounding submarkets being the most challenging.

In this supply/demand environment, some tenants are also looking at longer term real estate strategies and are opting to own instead of lease.

This is particularly true with many small to mid-sized users, ranging up to 50,000 square feet. In DuPage and bordering collar counties, for example, there has been an increase in sales of small to mid-size industrial buildings, as lower taxes continue to draw tenants to those areas.

There are a variety of reasons for this shift in mindset. Low interest rates make owning a building an easier proposition for many small business owners. As businesses prosper, owners are more comfortable making the commitment to buy and even taking on a little extra space now to accommodate future growth.

Owners also realize the value that the right real estate opportunity can create. The focus shifts to building wealth for themselves rather than paying a landlord for space.

As rent concessions and tenant improvement allowances shrink, some tenant see buying as a better approach.

Business owners also are more confident about their future growth plans and are more inclined to think about a five to seven-year horizon - if not longer.

They can recapture their upfront costs and start seeing market appreciation during that time frame. Should their future needs change, they are confident about reselling the building or keeping it as an investment. In essence, they are confident that Chicago's industrial market will remain strong and offer future stability.

The industrial market has been on a strong cycle for several years, pushing the vacancy rate down to the lowest level in about 15 years. While the big box users often are the focus of attention, due to the massive amount of space they require, there is a critical mass of small to mid-sized companies that are vital to the industrial cycle.

This is an exciting time for small to mid-size businesses in the suburban industrial market, as they experience growth and a strong sense of optimism about the future.

With that growth comes some important decisions about buying or leasing. Owners are wise to evaluate each scenario closely while being accurately educated of the advantages and disadvantages each situation presents.

The future outlook remains positive.

Quarter over quarter positive absorption and new construction inventory coming to market all point in the right direction.

Rising rents and improving market fundamentals are expected to help continue driving value growth.

• Mike Antonelli is vice president of sales with Brown Commercial Group in Elk Grove Village. Contact him at mantonelli@browncommercialgroup.com.