We are entering 2019 with a new set of challenges in the forms of rising interest rates, tightening credit and lingering uncertainty over the geopolitical climate yet many commercial real estate professions are still bullish on the Chicago real estate market as we go into 2019.
Weinstein, first vice president and regional manager of Marcus & Millichap's Chicago Oak Brook Office said, "As interest rates go up, we will see some cap rate decompression, particularly for income producing properties locked into long-term leases without adequate rent bumps to keep pace with inflation and the rising cost of capital."
Obtaining a good rate now with the right structure can add a lot of value, especially if interest rates increase as expected. Some developers are even getting into the lending and preferred equity business.
Ginsberg, co-founder of Chicago's real estate law firm, Ginsberg Jacobs LLC said, "Lenders and borrowers who were burned the last time around are putting safeguards in place to ensure the same mistakes aren't repeated. In case of developers, this means making more conservative projections in terms of rent or price growth."
Some owners and developers are re-envisioning entire shopping centers. Earlier this year, Structured Development secured a lease with climbing gym Planet Granite at the Shops at Big Deahl, a 500,000 square foot mixed-use center in Chicago's Lincoln Park neighborhood that's schedule to break ground in the spring of 2019. They believe that people will continue to go to stores to get the kinds of experiences they can't get online.
Big-box retail may be on life support, but retail is not dying. In fact, its not even ill. With the exception of automobiles, gas stations and restaurants, retail sales have grown year after year in all but one month since the beginning of 2010.
According to a Realtor.com survey of 100 US metro areas, Chicago will have the weakest housing market in the US in 2019 with declines in the number of home sales and in median home prices.
Crain's reported that Chicago home sales numbers will fall 7.l4 percent while median sales prices will be down 1.9 percent.
"Two big inflationary metrics to watch for are tariffs and rising construction costs because of labor and material price increases. The cost of construction labor has accelerated and has impacted development pipelines. Meanwhile rising tariff prices hike up materials costs for new developments and these hikes could soon be passed on to consumers too."
Senior Vice President of Research Services, Marcus & Millichap | John Chang
The industry is starting to respond to higher costs, helping to ease construction rush, Chang said. Major industrial hub markets, such as Chicago, have seen a flattening of vacancy rates because of construction.
