CHICAGO—Strong demand from e-commerce and logistics users continues to drive the Chicago region's industrial market, which saw developers deliver 8.3 million square feet of new product in the third quarter, according to Avison Young research. That was the most seen in the Chicago area industrial market since 2008. Developers have delivered through the end of the quarter 18.3 million square feet.
The amount of new industrial product under construction has started to slow, however, dropping to 12 million square feet during the quarter, from a high of 21 million square feet at year-end 2016. And although the market in general retains a remarkable amount of strength, here and there a few strains have begun to show.
“I think some submarkets are going to be oversaturated with new space,” Greg Rogalla, senior research analyst with Avison Young's Chicago office, tells GlobeSt.com. Specifically, the popular I-80 and I-55 submarkets, where developers have launched a number of speculative projects, should see new supply outpace tenant demand, at least for a short time. The I-55 and I-80 corridors accounted for 75% of all new product in the Chicago market, according to Avison Young research.
But with “the growth in e-commerce and logistics,” Rogalla says, the demand should be sufficient to soak up that new space relatively fast. “I don't foresee anything drastic.”
The largest project delivered in the third quarter was the I-80 Corridor's 1023 E. Laraway Rd., in Joliet, IL, a more than one million square foot spec building developed by Core5 Industrial Partners. Rounding out the top three were two build-to-suits: Uline's one million square foot facility at 12508 38th St. in Kenosha, WI; and the one million square foot fulfillment center developed by Seefried Properties, Inc. for Amazon at 6605 W. Monee Manhattan Rd. in Monee, IL.
And with other demand drivers, especially “the movement toward last mile distribution,” he adds, “infill sites closer to Chicago's large urban population, should continue to see strong activity for the near future.” Submarkets such as O'Hare and South Chicago, for example, “are not really overbuilt at all. They will be the ones leading the charge.”
Leasing velocity lagged significantly in the third quarter, falling 51% from the previous quarter to 3.9 million square feet. Of the 197 recorded leases, only 14 were renewals. The average deal size was relatively small and recorded at 18,154 square feet.
The vacancy rate increased 40 bps since last quarter and stood at 6.5%. Submarkets which recorded the largest positive changes in occupancy include the East DuPage, I-90 West/Elgin, and South Cook corridors— dropping 270 bps to 4.5%, 130 bps to 9.7%, and 110 bps to 4.1%, respectively.
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
