Source: Colliers International
CHICAGO—The industrial real estate market, at least for large tenants, has changed dramatically in Greater Chicago over the past few years from one that featured large lease transactions to tenants opting for build-to-suit projects instead.
According to a report authored by Colliers International VP Craig Hurvitz entitled: “Where did Chicago's Industrial Deals Go?” during the current cycle 25 speculative buildings greater than 500,000 square feet have been built, and another nine are under construction.
These 34 development projects total 23.8 million square feet of new speculative space since 2013, but have only been 47.7% leased.
He adds that seven speculative buildings greater than 800,000 square feet have been built or are under construction since 2017, six of which are in the I-80/Joliet Corridor submarket. Only one of those seven new buildings greater than 800,000 square feet are now occupied, a 992,640-square-foot building purchased by NFI in a user sale during 2018. The rest of the buildings remain vacant.
However, new mega deals bigger than 500,000 square feet have dropped off, or gone build-to-suit, Hurvitz relates. A total of 28 new lease deals 500,000 square feet or larger have been negotiated since 2016 in Chicago's industrial market. While 28 deals definitely show a strong market, half of those transactions occurred in 2016.
“Five new deals 500,000 square feet or larger were signed in new speculative buildings during 2016, while 2017 and 2018 each only had one new deal 500,000 square feet or larger signed in new speculative buildings, and none so far in 2019,” he notes.
In contrast, seven build-to-suit deals of 500,000 square feet or larger were completed in 2018 alone, and one has been signed in 2019. Of the 14 new deals that were 500,000 square feet or larger signed since 2017, 10 were at build-to-suit projects.
“This demonstrates that these giant requirements haven't disappeared—these users are finding value in going with a build-to-suit facility versus leasing a recently-completed speculative building,” Hurvitz said.
The report on the industrial market in Chicago follows up Hurvitz's recent first quarter report that detailed the strong big box sector in the greater Chicago area.
The vacancy rate in modern big box buildings greater than 200,000 square feet decreased by an impressive 54 basis points during the first quarter of 2019 to 8.53%, the lowest vacancy rate among big box product since the second quarter of 2017.
New leases and lease expansions signed between January and March totaled 4.9 million square feet among 23 leases, the greatest new leasing activity total in two quarters, and a 31% year-over-year increase when compared to the 3.7 million square feet of new leasing activity recorded in the first quarter of 2018.
As a result of this activity, net absorption totaled 3.8 million square feet during the first quarter of 2019, the greatest quarterly net absorption tally since the second quarter of 2017 in the big box category.
Seven big box development projects totaling 2.7 million square feet were delivered during the quarter, while 28 projects totaling 13.5 million square feet are currently under construction, all of which is expected to be delivered prior to the end of the year.
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John Jordan
John Jordan is a veteran journalist with 36 years of print and digital media experience.
