Chicago: It's the hottest commercial property market since 2007

Sales of Chicago-area commercial properties are on pace for their best year since the crash amid an improving economy and low interest rates.

Investors acquired more than $9.15 billion in local apartments, hotels, retail, office and industrial properties through August, up 28 percent from the $7.14 billion spent through the first eight months of last year, according to New York-based Real Capital Analytics Inc.

Sales volume is on track for its highest annual level since its peak in 2007, when $22.5 billion in commercial property sold.

Investor demand for real estate continues to rise amid the slowly growing economy, which is pushing up occupancies and rents, and low interest rates, which has kept borrowing costs low and made it harder to find good returns on other investment types. At the same time, many landlords are capitalizing on soaring prices by putting their properties up for sale. And even higher prices in hot coastal markets are drawing more investors to Chicago.

“Nationally there's more being invested in commercial real estate, but I imagine Chicago is benefiting from the compression in yields and increase in prices in places like New York, San Francisco and Los Angeles,” said Ben Carlos Thypin, director of market analysis at Real Capital.

Nationally, prices for commercial real estate, except for office properties, have passed their 2007 peak, according to a report by Green Street Advisors Inc., a Newport, California-based research firm. A commercial-property price index calculated by Green Street has risen 7 percent in the past 12 months.

Sales of Chicago-area industrial properties have risen 55 percent, according to Real Capital, buoyed by renewed demand for “higher-grade” buildings by institutional investors, said Britt Casey, an executive director in the Rosemont office of real estate brokerage Cushman & Wakefield Inc. With 13.5 million square feet sold here in the first half of the year, Chicago was the most active industrial market in the nation, according to New York-based Cushman & Wakefield.

The recovering economy should help boost demand for commercial space, and support sales and prices in turn, Mr. Thypin said.

“Whether (the economy) continues to grow at the pace it seems to be growing this year remains to be seen, but the bottom falling out anytime soon is pretty unlikely,” he said.

Expecting a typical increase in activity in the fourth quarter, Mr. Thypin expects Chicago-area commercial property sales to exceed last year's total of nearly $14.6 billion.

Significant sales so far this year include the record $850 million paid for the office tower at 300 N. LaSalle St. and the $85 million deal for the 1.6-million-square-foot Solo Cup warehouse in the south suburbs. Other deals include the $60 million sale of the Golf Mill Shopping Center in Niles and the $132 million sale of a Gold Coast apartment building.