Big Box Leases in Chicago Totaled Nearly 5 Million SF in First Quarter

CHICAGO—New leases and lease expansion deals in the big box sector in the greater Chicago market totaled approximately 4.9 million square feet in the first quarter, a 31% increase over the 3.7 million square feet leased a year earlier.

The first quarter big box vacancy rate was the lowest since the second quarter of 2017.

Colliers International’s Chicago office reports that the vacancy rate for big box buildings of more than 200,000 square feet declined by 54 basis points to 8.53% at the end of the first quarter of 2019.

The 23 lease deals that netted nearly 5 million square feet of activity, resulted in the net absorption of 3.8 million square feet in the Greater Chicago big box market that consists of 585 facilities totaling 257.6 million square feet.

The report’s author, Colliers Chicago vice president Craig Hurvitz, notes that the first quarter absorption was the highest since the second quarter of 2017.

A total of seven big box development projects totaling 2.7 million square feet were delivered in the first quarter, while 28 projects totaling 13.5 million square feet were under construction by the end of the quarter. All of these projects are expected to be delivered prior to the end of this year.

The largest new lease signed during the first quarter was a 590,525-square-foot build-to-suit transaction between Fresenius Kabi USA, LLC and Venture One Real Estate for a new facility in the new Stateline 94 Corporate Park in Pleasant Prairie, WI. Coming in at number two was Lennox International Inc.’s new 384,768-square-foot lease at 175 Southcreek Parkway in Romeoville, IL.

The largest big box buildings to trade between January and March were sold as part of large investment portfolio sales acquired by institutional firms The Blackstone Group, Colony Capital and Black Creek Group.

Some of the other key data points from the Hurvitz big report included that significant leasing activity in the first quarter resulted in the big box vacancy rate for buildings between 500,000 square feet and 749,000 square feet to fall by almost two percentage points to 7.12%. The first quarter vacancy rate for buildings in the 200,000-square-foot to 499,000-square-foot range fell by six basis points to 9.82%, while the rate for buildings greater than 750,000 square feet decreased by 42 basis points to 7.16%.

In late April, Colliers released first quarter market reports on the Chicago region’s office and industrial markets that all showed strong activity and lower vacancy rates.

Chicago’s CBD office vacancy rate shed 30 basis points from last quarter to 12.5% at the end of the first quarter of 2019. On average, over a five-year timespan, Chicago’s CBD vacancy has shed 32 basis points per quarter.

Class A vacancy decreased by 70 basis points from last quarter and has decreased 129 basis points from last year to 10.99%. On average, over a five-year timespan, Chicago’s CBD Class A vacancy has decreased by 0.56% per quarter, Colliers reported.

Class B vacancy decreased by 17 basis points from last quarter and has increased by 173 basis points since last year. On average, over a five-year timespan, Chicago’s CBD Class B vacancy has decreased by 0.09% per quarter.

Colliers noted that Chicago’s industrial market recorded 115 new leases or lease expansions totaling 8.7 million square feet between January and March. That activity pushed the overall vacancy rate down four basis points to 6.3%, the lowest level since early 2001.

All market indicators were positive during the first quarter of 2019, including net absorption, which measured 3.7 million square feet for the period. A useful indicator of demand for space, net absorption has now been positive for the past 28 quarters in a row, Colliers noted.

Logistics and transportation companies continued to expand footprints locally, many of which are providing solutions for e-commerce requirements. Of the 12 new leases or lease expansions greater than 200,000 square feet signed during the first quarter of 2019, six were third-party logistics providers.

Significant development activity continues in the industrial sector, with greater than 16 million square feet expected to be delivered over the next six months, 69% of which is being built on a speculative basis.