Commercial Real Estate: Lagging industrial supply in the Midwest is buoying the sector, Situs RERC survey respondents say

The industrial sector rated highest among all property types in the Midwest region of the U.S. for its return vs. risk, while the hotel and apartment sectors tied for best for value vs. price. The retail sector fared the worst in both metrics among the property types. That’s according to a survey of regional respondents conducted for the May 2019 Situs RERC Real Estate Report, “Defensive Positioning.”

With increasing wages in many major Midwest metros and rising consumer preferences for online shopping, e-commerce is expected to flourish in the region. A lack of new construction and limited industrial projects in the pipeline are putting upward pressure on prices. Several respondents indicated that the industrial sector will offer the best downside protection in the event of a correction or recession.

Here’s a closer look at some of the major metro areas in the Midwest:

CHICAGO
Chicago added 39,900 jobs in the last 12 months through 1Q 2019 as employment grew 0.9%. At 3.9%, unemployment is above the national average of 3.8%.

Over the past 20 to 30 years, former downtown industrial districts have converted to office space with thousands of workers, many of whom live nearby in new apartment towers that have transformed into thriving residential neighborhoods teeming with young, educated new workers. Recently, however, there has been a dramatic rise in the number of downtown office properties for sale as private equity investors try to cash out at the top of the cycle.

MINNEAPOLIS
Minneapolis added 12,543 jobs in the last 12 months through 1Q 2019 as employment grew 0.7%. At 3.6%, unemployment is below the national average of 3.8%.

The co-working trend has picked up its pace in the Twin Cities as companies like WeWork and CommonGrounds Workspace continue to expand in the market. Investors are attracted to the Minneapolis office market because of its strong fundamentals.

COLUMBUS
Columbus added 27,178 jobs in the last 12 months through 1Q 2019 as employment grew 2.6%. At 3.4%, unemployment is below the national average of 3.8%,

The state capital has become one of the top locations worldwide for internet cloud operations. Google plans to spend $13 billion in 2019 building new data centers across the U.S., including a $600 million data center outside Columbus in New Albany.

Last week in Newswatch, we looked at the West region of the US. In future weeks, we’ll look at the Situs RERC survey results for the South and East regions of the U.S.

The Situs RERC Real Estate Report is the commercial real estate industry’s most respected and relied-upon survey-based resource of CRE investment criteria for risk analysis for over 45 years. This quarterly report is packed with a variety of valuation metrics, including cap rates, pre-tax yield/discount rates, and investor insights on the institutional, regional, and 48 major markets. The next quarterly RERC Real Estate Report is scheduled to be released at the end of the month. To subscribe to the report, go to store.rerc.com or call 319.352.1500.

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