CHICAGO—The recent good news about the nation's economy is reflected in the metro region's market for industrial real estate. As reported in GlobeSt.com, last week NAI Hiffman found that in the fourth quarter demand from industrial users helped push down vacancy rates to a level not seen since 2001. Furthermore, NGKF has just published its analysis on the fourth quarter, and found that about 11-million-square-feet of space was absorbed over 2014, and about 7.8 million-square-feet were delivered, pushing down vacancy to just 8.3%, which according to its slightly different methodology is the lowest level since 2006. The area has now seen 19 consecutive quarters of positive net absorption.
In addition, “weighted average asking rents also improved during the year, increasing each quarter to rise 3.1% during 2014 to end at $4.70-per-square-foot triple net,” the firm found, a fact which helped inspire developers to begin putting new projects in the ground. And just like the previous year, in 2014 it was the demand for new warehouse space which defined Chicago's market.
“One “X” factor that is influencing all aspects of new construction is e-commerce and it's direct effect on supply chain configurations which are rapidly changing,” Geoffrey Kasselman, executive managing director of NGKF's national industrial practice, tells GlobeSt.com, increasing the demand for storage space. According to the firm's analysis, “warehouse space accounted for 61% of net absorption and 97% of new construction deliveries.”
During the fourth quarter, for example, Amazon occupied its new 513,976-square-foot warehouse in Kenosha in the Southeast Wisconsin submarket. And it will soon occupy its other build-to-suit in Kenosha, a 1-million-square-foot warehouse, getting 2015 off to a tremendous start.
And that big start should just be the beginning of another good year, NGKF analysts believe. They estimate that developers have about 12.9-million-square-feet under construction, nearly half of which is pre-leased or sold. Still, this level of construction is significantly below the peak year of 2007, when developers had about 17-million-square-feet underway. Therefore, supply will remain constrained in 2015, pushing up rents between 3% and 5% and creating a solid “landlord's market.”
Kasselman adds that it's tough to pick what will end up being 2015's most notable project. “Bridge's redevelopment of the former Dominick's property in Northlake has all the makings for a notable project in 2015,” he says. But “whoever lands the two large Amazon deals and the M&M Mars deal that are floating around the market will rotate into 'notable' position with those wins.”
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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.
