Is the O’Hare Market Ready for Take-off?

December 20, 2011

As seen in RE Journals
By Adam Marshall
NAI Hiffman Industrial Services Group

Chicago’s O’Hare industrial market houses a diverse mix of distribution and manufacturing companies in one of the largest concentrations of industrial property in the Midwest. Surrounding O’Hare International Airport, the O’Hare industrial market is comprised of Elk Grove Village, Des Plaines, Rosemont, Franklin Park, Bensenville, Wood Dale and Itasca. During the economic downturn, this market suffered greatly and still shows signs of high vacancy rates, historically low rental rates and sale prices. What signs can we look for to forecast the future of the O’Hare industrial market?

It is hard to find consistent and clear data to predict future trends, but two good sources of local information provide an insight into this market. First, the Chicago Department of Aviation collects monthly air cargo volume figures based on freight tonnage at O’Hare International Airport. Second, the Federal Reserve Bank of Chicago tracks Midwest manufacturing output in Illinois, Indiana, Iowa, Michigan and Wisconsin. Reviewing these two indicators tells a great story of where this market has been and where it is going.

In the heart of this market, air cargo volume at O’Hare can be used as a leading indicator for distribution space demand in this area. Using a regression model on O’Hare air cargo tonnage and the O’Hare industrial vacancy rate over the past ten years, the effect of cargo tonnage is statistically significant and negative. This means when air cargo tonnage increases or decreases, there will most likely be a lagging opposite effect on vacancy rate. As an example, in 2009 we experienced the lowest cargo volume recorded over the past ten years and a 14% decrease from 2008. The vacancy rate in the first quarter of 2009 was 11.22%. It increased to its highest reading in the past 10 years to 12.59% in the first quarter of 2010 representing a 12% increase in the vacancy rate within 12 months. We soon witnessed the opposite effect with a dramatic 24% increase in cargo tonnage during 2010 which paralleled a 7% drop in the vacancy rate from the first quarter of 2010 to the first quarter of 2011. Currently cargo tonnage through the third quarter of 2011 has decreased slightly by approximately 4% versus the same period in 2010 with a corresponding 10.8% vacancy rate.

The importance of air cargo distribution in the O’Hare market is exemplified by a few recent deals. The largest transactions in the market this year were logistics companies leasing modern distribution space. CEVA Logistics leased 232,000 square feet and Hegele Logistics leased 207,000 square feet in the 439,000 square foot ProLogis owned building at 855 N. Wood Dale Rd in Wood Dale. Companies like these that rely on expediting time sensitive products through O’Hare Airport drive much of the space demand in this market.

The volatility of 2009 and 2010 is behind us. We now see a stabilization of air cargo volume at O’Hare over the past twelve months. With no new speculative property development in this market, we should see demand continue to slowly reduce current vacancy rates.

Another pulse to watch in this market is the Chicago Federal Reserve Midwest Manufacturing Index. While broad in its scope of coverage across the Midwest, it uses “hours worked” data to measure monthly changes in regional manufacturing activity. The height of this index achieved a reading of 101.3 in January of 2008. The lowest point recorded a 68.3 in June of 2009, representing a 33% decrease from the peak. The September 2011 index was 85.2 which is a 25% recovery from the bottom in 2009. This reading is also the highest level in three years since posting an 86.5 in October 2008. The current index is only down 7% from the 10 year average of 91.3 although it has remained relatively flat over the past six months.

The Chicago Federal Reserve Midwest Manufacturing Index is not a leading indicator for industrial demand in O’Hare. However, it is a general gauge for local production which directly impacts the supply chain and movement of goods through this area. While our economy shifts towards distribution, manufacturing is still dominant in the O’Hare market. One of the largest manufacturing deals in O’Hare this year was the relocation of Toyo Ink America to 108,000 SF at 1225 N. Michael Drive in Wood Dale which doubled their capacity.

Relative to the air cargo volumes at O’Hare, the Chicago Federal Reserve Midwest Manufacturing Index corresponds to the variability seen over the past couple of years. Keep a watchful eye on these important statistics as they will likely determine future demand in the O’Hare industrial market. While both data sources show improvement from the bottoming out of these indexes in 2009, neither set indicates substantial growth in the near future. The stabilization in these latest figures should allow for a slow but smooth take-off to recovery in the O’Hare market.

Follow these statistics at www.ChicagoIndustrialist.com

Adam Marshall, CCIM, is an industrial real estate broker at NAI Hiffman and specializes in the O’Hare and surrounding markets.

Posted by NAI Hiffman | Filed Under Adam Marshall, Industrial

Bensenville Terminates Water Surcharge to Industrial Customers

March 11, 2010

The elimination of this surcharge will take effect on utility bills mailed out on March 5, 2010

For more information regarding the Bensenville Termination of Industrial Surcharge Fees contact Adam Marshall: amarshall@hiffman.com

Posted by NAI Hiffman | Filed Under Adam Marshall, Industrial

O’Hare Modernization Update

February 15, 2010

Adam Marshall recommends the following article on the O’Hare Modernization Program, as seen in Crain’s Chicago Business:

Rift between city, airlines threatens O’Hare expansion plans

City Hall is playing hardball with airlines at O’Hare International Airport in a last-ditch effort to keep alive hopes for building a new terminal.

Aviation Commissioner Rosemarie Andolino caught the airlines by surprise last month by insisting the completion of O’Hare’s expansion include the terminal, which the airlines oppose. She antagonized carriers further by raising their landing fees and terminal rents in part to pay down debt incurred in the first phase of the expansion. Read more…

For more information regarding the O’Hare Modernization Program, please contact Adam: amarshall@hiffman.com.

Posted by NAI Hiffman | Filed Under Adam Marshall, O'Hare International Airport, O'Hare Modernization Program

January 2010 Global Economic Outlook web conference available OnDemand!

January 25, 2010

Now that we have found “the bottom,” what’s next?

NAI Global’s Chief Economist Dr. Peter Linneman previews a slow economic recovery in 2010, with jobs on the decline through the first quarter and the housing sector in an upturn, with an in-depth review of what happened in 2009 and where we can go from here. Listen to the January 2010 Global Economic Outlook web conference OnDemand.

Posted by NAI Hiffman | Filed Under Adam Marshall, General Business, Investment, NAI Global

Somewhat encouraging news for Chicago manufacturers

December 18, 2009

Marshall, Adam Adam Marshall of the Industrial Services Group at NAI Hiffman recommends this article from Crain’s Chicago Business:

“(Reuters) — Business activity in the U.S. Midwest expanded more than expected in November, reaching its highest level in over a year as new orders jumped, a report showed on Monday…” Read the full article here.

Posted by NAI Hiffman | Filed Under Adam Marshall, General Business