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Chicago commercial properties price gains among best in the world

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Chicago’s real estate price index has risen sharply in the last four quarters, mainly due to the rebound effect and the booming industrial market, said Jim Costello, chief real estate economist at MSCI, a New York-based research firm. Says. Last year’s Real Capital. Prices recovered after a stagnation in the early stages of the pandemic, boosted by a surge in investment activity last year. The industrial property market has been particularly hot, raising the overall price index weighted by trading volume over a period of time.

“In the industrial sector, the volume of transactions is increasing, and the industrial sector is increasing significantly,” Costello said.

For example, a blackstone unit in late March Paid nearly $ 150 million Wakigan and Zion office building portfolio. The suburban condominium market is also strong. In February, The Preserve at Woodfield Apartment, a 662 apartment complex in Rolling Meadows, opened. $ 111 millionUp 54% from the price of the 2017 sale.

According to a Real Capital report, Chicago followed only Sydney in Australia and Seoul in South Korea with an annual increase of 19.4%. Both were ranked in the rankings of 20 cities around the world with an increase of 20.1%. The composite index for all 20 cities rose 8.6% in 12 months. Chicago leads the US urban market, with Los Angeles up 15.3% and San Francisco up 14.9%.

The price index calculated by comparing the repeat sales of the same property includes office, industrial, commercial and hotel properties in the city and suburbs, but does not include apartments. Chicago also recorded a significant increase of 24.2% in the last two years. This is the sixth largest increase in the 20 world cities tracked by Real Capital.

The Chicago index actually started slipping before the COVID-19 pandemic in 2019. It will be back in the last few months of 2020. By the third quarter of 2021, the index will be above its previous peak and will date back to 2007.

However, the Chicago real estate market story is a bit more complicated. While warehouse and apartment rents and real estate values ​​are rising, the office market remains a question mark as many professionals work on remote or hybrid schedules. Many companies are shrinking their office space Downtown When Suburbs The vacancy rate reached a record high.

Some downtown office landlords are already Is the default About mortgages.Others just decided to Pass those properties To their lenders. Buying a downtown office building is more risky than it used to be.

“There is a lot of uncertainty about that,” Costello said. “It will take a while to see how it works.”

Retail real estate, on the other hand, is a mixed bag.Investor demand is strong for shopping centers with rental properties with grocery stores and other essentials-focused retail stores, but e-commerce Water Tower Place And that Northbridge shop Both are on North Michigan Avenue, which is struggling. The hotel has begun to recover from a pandemic, but its future relies heavily on business trips and the recovery of large group businesses.

Also, it is unclear how long animal spirits will continue to push prices up. Jitters about inflation, interest rates, and potential recessions are useless. One Warning Sign: Commercial mortgage yields have recently been higher than capitalization rates, or income-generating real estate first-year revenues. According to a Green Street report, the last time borrowing rates exceeded the cap rate was before the global financial crisis.

Two more signals can mean that prices are falling. In a recent report, Green Street said corporate bond prices and real estate investment trust stocks (often reliable predictors of the value of commercial real estate) have fallen and are “blinking red.” Price declines in the 10% to 10% range are “the most likely scenario of the year’s balance, but not necessarily odds-on,” the report said.

Another sign of weakness: more buyers are demanding price cuts to account for higher borrowing costs due to rising interest rates, Green Street writes. Whether investors are facing a significant and painful decline in real estate value, or simply stagnant, it becomes increasingly difficult to make good money in real estate.

“The era of juicy returns is clearly over,” writes Green Street.

In terms of price, it has been good for the Chicago market for the past year or so, but the long-term trend is not so good. According to Real Capital, Chicago’s price index has risen only 16% since the end of 2006, but Los Angeles is 72%, New York is 64% and San Francisco is 133%.

The Chicago Metropolitan Area lacks one thing that attracts real estate investors. It is a rapidly growing population. In that respect, it cannot compete with locations such as Austin, Texas, Phoenix, Arizona, and Tampa, Florida.

“It’s not as easy to identify a growth story as in other markets,” Costello said.

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