CHICAGO—The local industrial market has been putting up great numbers for several years, and 2015 is shaping up to be no different. Since 2014, rent growth has continued alongside falling vacancy rates in many submarkets, according to data on the third quarter just published by Transwestern. But perhaps even more significant, investors still can't get enough of the Chicago-area market. Although third quarter sales fell off from the first two, the year as a whole is still on pace to record the largest gains in investment sales since the recession.
Industrial real estate sales prices are on average $74.15 per square foot, Transwestern found, a big jump from the $45.16 per square foot recorded last year. Overall vacancy dropped 40 bps from the second quarter, and now stands at just 7.2%. Rental rates held steady in the third quarter at $5.38 per square foot but activity doubled with 3.3 million square feet absorbed across the entire region.
“E-commerce is changing the landscape across all commercial real estate types, but especially with industrial properties,” according to Transwestern. Most of the companies moving to the Chicago area have some e-commerce component. Local manufacturing companies, such as Caterpillar, continue to downsize, and most of the tenant demand is for distribution spaces and 3PLs supporting online retail vendors. “The remaining question will be if savvy owners will be able to repositions older suburban industrial products in order to make it attractive to alternative users.”
As in the second quarter, the I-55 and North DuPage submarkets had the most notable signings. Swap.com, a fast-growing online retailer, signed a 361,000 square foot lease at 850 Veteran's Parkway in suburban Bolingbrook, marking its second major expansion since its founding in 2013. At its previous location, Swap.com, which offers a selection of pre-owned baby, kid's, maternity and women's apparel and accessories, occupied just 66,000 square feet, making this not just a big lease, but one that many say is indicative of the market's direction.
However, it's not just new, explosive companies that are buoying the Chicago market. Central American, for example took 490,420 square feet at 815 Bluff Rd. in Romeoville, and Kane Warehousing leased 220,592 square feet at 700 S Weber Rd. in Bolingbrook.
With so much activity, it's probably no surprise that new construction is proceeding at a relatively healthy clip. Transwestern found that developers have 11 additional industrial/flex properties under construction this quarter. A total of 36 projects broke ground so far this year. When completed, builders will have added 10 million square feet to the Chicago area's industrial inventory; with 42% of it already pre-leased. “The construction numbers suggest that industrial investors are cautious of funding 100% spec development but developers are optimistic that Chicago will support major gains in new construction.”
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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.
