CHICAGO—The Chicago-area industrial market stayed on the road to recovery in the third quarter, according to Cushman & Wakefield's just–published MarketBeat report. The firm's researchers found that the overall vacancy rate has improved for the 14th consecutive quarter, sinking to just 6.6% at the end of the third quarter, down 1.2% from this time last year, helping to push up rental rates to pre-recession levels. Furthermore, the total square-feet leased for the metro region is 27.7-million-square-feet year-to-date, an 8.0% increase year-over-year. The total puts Chicago on track to surpass the 30.9-million-square-feet leased in 2013.
“The uptick in activity within the industrial leasing sector is a strong indication of the demand for warehouse/distribution and manufacturing space in the next few years,” said Simone Schuppan, director of market research for the firm's central region and a contributor to the report. “Consistent growth will manifest Chicago as one of the major industrial centers in the world.”
“Weighted average direct net rental rates have reached pre-recession figures and ended the third quarter at $4.67-per-square-foot, 10.4% higher than the $4.23-per-square-foot reported this time last year,” the firm noted. As reported in GlobeSt.com, this steady increase has given industrial developers all over the region, but especially in tight submarkets like the I-55 corridor, the confidence to launch new projects, even speculative ones.
Todd Naccarato, founder and senior principal of Oakbrook Terrace, IL-based Molto Properties, for example, told GlobeSt.com that the rebound in rates was the “most important factor” leading to new development. Earlier this year, Molto launched a spec in suburban Romeoville, and plans to finish the 189,731-square-foot distribution facility this month. “We're also seeing a lot of demand for product in this size.”
And the Opus Group has also taken advantage of this strengthening market by launching the construction of two speculative industrial buildings in Paragon Business Park, located off Taylor Rd., also in suburban Romeoville. Upon completion, the project will add about 255,000-square-feet of new class A industrial space to the I-55 submarket.
Opus just completed a 604,565-square-foot speculative industrial building in North Aurora near the I-88 expressway for San Antonio-based USAA Real Estate Co. Other submarkets where Opus has sites for spec developments under contract include Chicago, Central DuPage, Lake County and North Cook County.
Developers completed a total of 3.7-million-square-feet by the end of third quarter with an additional 15.1-million-square-feet under construction, Cushman & Wakefield found. About 2.4-million-square-feet of the new product is in the I-55 and I-80 corridors. And 55.2% of the space is being built on spec.
“Chicago's industrial market forward outlook remains positive through the end of the year and 2015,” the researchers conclude. “With vacancy declining and strong tenant demand, developers and institutional investors are incentivized to continue building ready-to-go speculative warehouse/distribution space in order to meet increasing demands.”
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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.
