The Chicago industrial market maintains strength, continues to see unprecedented growth

The Chicago industrial real estate market continues to see unprecedented growth due to tenant demand that has far exceeded the current building supply.

That means despite negative headlines relating to businesses leaving Illinois, there are still thousands of local small and mid-size businesses vying to lease a limited amount of available space. With industrial real estate vacancy at historic lows, there is very limited square footage available for the tenants that are searching for their next business address.

At Clear Height Properties, we carefully study supply-and-demand dynamics, building functionality and tenant trends so that we understand the markets where we own and operate industrial assets.

We acquire, own and manage properties that are functional and attractive to existing and future tenants. The goal, for the 300-plus existing tenants within our more than 3 million-square-foot portfolio, as well as potential tenants, is to accommodate their business and operational needs.

Small to mid-size local and regional businesses are critical to the long-term success of Chicago and the industrial marketplace. These types of businesses funnel goods, services and dollars back into the local economy. These businesses are generally looking for spaces that fall within these parameters:

• 1,000 to 75,000 square feet in size.

• A flexible and responsive landlord with a portfolio of buildings, where their business can expand or contract, depending on the economy and the business needs.

• Spaces zoned for warehousing, distribution, construction and manufacturing uses.

Over the last several years, this local business segment has done particularly well across the area and within our property portfolio. Since the start of the pandemic, we have worked with tenants facing a variety of challenges needing assistance in regaining solid footing. We have also seen businesses experience tremendous growth and expansion, despite the pandemic and changing economy.

For example, a UK-based beauty company recently leased an additional 8,000 square feet of space for their new business line. The leadership at the company wanted all its businesses located closely together to achieve certain economies of operations.

Additionally, an automobile parts manufacturer has seen unprecedented growth over the last year. Already occupying a 10,000-sqare-foot space within one of our assets, the company recently expanded its footprint within its current building to 40,000 square feet. This expansion allows the company the ability to fulfill its growing customer demands.

Midyear observations

• The state of the industrial market: Despite growing headwinds, the general economy and the industrial real estate sector are doing quite well. This is demonstrated by historically low vacancies, increasing upward pressure on rents and intense competition for space. It's not uncommon for multiple tenants to be chasing the same space, which can push rents higher and allow landlords to be firm on the length of leases.

• Interest rates: The 75 basis-point increase in interest rates was more aggressive than originally anticipated but should be viewed as a necessary action aimed at curbing inflation and other business concerns. The Fed had already signaled it was going to take decisive action.

The increase in rates will affect all businesses differently. Well-capitalized businesses should experience little disruption. Certain businesses, those whose access and/or use of capital is tied to variable rate financing, may experience greater difficulty. In general, we don't see interest rates as an issue that will have widespread implications for businesses or leasing activity.

These are unprecedented times, where there may be exceptions to "general" rules. Qualified tenants may be awarded concessions - with both tenants and landlords looking more closely at lease terms. Further, given the competitive forces and escalating rents, more tenants may look to remain and/or expand in an existing location to avoid business disruption and increasing costs.

We believe there are still plenty of great opportunities in the industrial marketplace. This sentiment applies to owners and investors like Clear Height, and to the tenants Clear Height serves in the marketplace. Cycles occur in any business. Staying true to your principles and close to your tenants, landlords and assets will serve everyone well.

• Rick Nevarez is director of acquisitions and Max Hoye is director of leasing at Oak Brook-based Clear Height Properties, a real estate investment and management firm with a portfolio of properties in excess of 3 million square feet.