CHICAGO—The metropolitan area's industrial market turned in another great performance in 2015, and shows every sign of continuing the now five-year positive trend. That's according to a new research and forecast report from Colliers International. The firm found that the vacancy rate sank to a 14-year low, tenants absorbed about 14 million square feet and developers were more active than they have been since 2008.
"It's the strongest landlord market that I've ever seen, and I have been in the business since 1981," Jack Rosenberg, national director for logistics and transportation for Colliers, tells GlobeSt.com. The market now has a 7.32% vacancy rate, 41 bps below the rate recorded at the end of 2014. Since peaking at 12.24% in early-2010, this rate is now well below those recorded during the active market of 2007.
And despite nearly 3.4 million square feet of positive net absorption during the fourth quarter, the vacancy rate increased by 6 bps since September due to the completion of almost 3.6 million square feet of new speculative construction, Colliers found. This new space combined with vacated second-generation space brought the total available supply in the market to 97.8 million square feet.
And with both demand and construction activity picking up, significant changes could soon occur in many submarkets, especially the area around O'Hare International Airport. The submarket has a lot of older buildings, and many developers feel it now makes financial sense to buy up these properties and replace them with structures more suitable for modern distribution needs.
"People are willing to pay up for infill space around O'Hare," Matthew Stauber, a principal with Colliers, tells GlobeSt.com. And it is not necessarily companies using the air freight facilities. Instead, distributors that need to access the network of highways that converge around the airport are the new drivers of demand.
"The fact that Amazonis trying to make deliveries within one or two hours has changed the market," adds Rosenberg. Although land in the I-55 market around Joliet can be had for roughly one-fifth the price in some cases, a distributor there can quickly access only a portion of the metro area. From O'Hare, however, delivery trucks have highways stretching off in every direction, making the cost of land far less important. "It's not a real estate issue anymore, it's a customer service issue."
And the buildings put up on a speculative basis around O'Hare since the recession have typically secured top national tenants, which has further whetted the appetites of industrial developers. "There are now metrics out there that prove out the theory," says Stauber. Companies that have recently taken up big amounts of speculative space around the airport include C.H. Robinson, McNichols Co., NNR Global Logistics USA Inc., Ceva Logistics, Yusen Logistics, LSG Sky Chefs and Pet Food Experts.
In response, developers have begun to unveil more ambitious plans for the submarket. Panattoni Development Co., for example, recently purchased a 522,000 square foot building on 27.8 acres at 3400 Wolf Rd. in Des Plaines, and plans to raze the structure to build a new 491,086 square foot facility on the site with 36' clear ceilings.
However, Stauber expects that new development around O'Hare will proceed at a modest pace. Although many of its buildings are older and have relatively low ceilings, both demand and occupancy for them remain high. Therefore, land will remain scarce, and developers will still have to carefully evaluate each property that does become available to make sure it can support a modern distribution facility. "It is not going to be a radical change."
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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.
