CHICAGO—After dramatic improvements during the first quarter of 2013, leasing and sale activity among industrial properties in the Chicago metropolitan area slowed down in the second quarter, according to research published last week by Colliers International. Net absorption was positive, but was still below the level seen in the first quarter. However, the vacancy rate remained largely unchanged, with only a marginal increase of 3 bps from 9.0% to 9.03%. The recent completion of a 1.6-million-square-foot BTS in the I-80/Joliet Corridor for Home Depot at the giant CenterPoint Intermodal Center helped keep the overall vacancy rate steady, Colliers found.
During the first quarter, the overall vacancy rate fell a surprising 51 bps, from 9.51% to 9.0%. “The dramatic improvement was the result of strong leasing demand coupled with a nominal amount of space returning to the market,” Colliers researchers noted at the time. But for the second quarter, “leasing volume totaled 8.7-million-square-feet, a 14.9% decline from the 10.3-million-square-feet registered in the first quarter.” Still, net absorption was positive for the fifth consecutive quarter. And even though Chicago-area industrial supply increased slightly, from 118-million-square-feet to 118.9-million-square-feet, “the second quarter level represents a 10.6% improvement from one year ago when 133.1-million-square-feet were reported vacant.”
Tenants were most active in the I-55 Corridor and O'Hare submarkets which saw leasing deals totaling about 2-million-square-feet and 1.2-million-square-feet, respectively.
Sales in the metropolitan area also declined from 3.9-million-square-feet in the first quarter to 3.5-million-square-feet, a 10.6% decline. By comparison, one year ago, there were 5.3-million-square-feet in sales transactions.
Although some companies have gained enough confidence to start putting up speculative buildings, BTS projects were far more common in the second quarter. “At the end of the second quarter,” Colliers noted, “2.2-million-square-feet of new [BTS] facilities were completed, accounting for 91.6% of the 2.4-million-square-feet of total construction completions.” And BTS construction will continue to outpace speculative deliveries for some time as BTS projects constitute 3.3-million-square-feet of the 4.5-million-square-feet currently underway.
Even with the modest slowdown in the second quarter, the need for large-scale warehouse and distribution facilities keeps driving the market. In addition to the Home Depot project, Clarius Partners delivered a 1-million-square-foot speculative development, also in Joliet, during the first quarter. This was the second new facility with more than 1-million-square-feet completed during 2013 in the Chicago area. “The last time the metropolitan Chicago area witnessed multiple 1-million-square-foot deliveries was in 2007 when three such facilities were completed,” Colliers noted.
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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.
