Tenants Filling Up New Big Box Product

CHICAGO—Experts in the Chicago region’s industrial market predicted earlier this year that enough demand existed to fill up the many speculative projects coming out of the ground. According to a new report from Colliers International, their prediction seems to be coming true.

The vacancy rate for the Chicago market’s big box product, defined as modern distribution buildings 200,000 square feet and larger with ceiling clear heights of at least 28 feet, decreased by 41 bps to 9.23 percent during the first quarter of 2018, according to Colliers.

“This represents the first improvement to the vacancy rate in two years, during which vacant speculative construction deliveries resulted in a steadily increasing vacancy rate, even while net absorption remained positive,” Colliers says.

Tenants signed twenty new leases in big box buildings during the first quarter, totaling 3.7 million square feet, the greatest quarterly new leasing volume since 2016. This activity, combined with two build-to-suit completions and 2.8 million square feet of new vacancies being introduced during the quarter, resulted in a net absorption total of 3.5 million square feet.

Developers have finally slowed down the pace of construction. Only four big box buildings totaling 2.8 million square feet of new supply were completed during the first quarter, the least amount of deliveries since the first quarter of 2016. Builders now have fifteen big box projects under construction, totaling 5.7 million square feet, about one-third of the 17 million square feet under construction one year ago.