Lee & Associates recently released its Third Quarter Chicago Industrial Market Report, a comprehensive publication with in-depth statistical information covering 18 of the Chicago area’s most active submarkets. We are pleased to share some of our key findings.
The biggest news coming from the third quarter was the Federal Reserve’s decision to cut its benchmark interest rate by half a percentage point, marking the only cut since the emergence of the COVID-19 pandemic. There are varying viewpoints on the tangible impacts this cut will have on industrial development in the coming quarters, but many are optimistic that the capital markets will begin emerging from their slumber, and deal flow and new development will pick up again.
One trend we’ve seen over the past several quarters—which is expected to continue for several more—is a correction of market fundamentals to more historically “normal” levels. The outsized demand that occurred in 2021 and 2022 resulted in unprecedented rent growth and a wave of new speculative construction that the market is still trying to absorb.
When considering all submarkets, Chicago’s overall vacancy rate ended the third
quarter at 5.4%—a historically healthy number—with a noticeable uptick in vacancies in the logistics sector. Companies in the third quarter were generally hesitant to make relocation decisions, with many remaining in place if able to do so.
Third quarter leasing velocity was sluggish across most geographies. The largest new lease of the third quarter occurred in the I-55 Corridor where LSC Communications took 659,157 square feet at 1000 Windham Parkway in Romeoville.
Net absorption improved from the second quarter, registering positive 2.8 million square feet in the third quarter and positive 8.3 million square feet year-to-date. Nine of Chicago’s industrial submarkets experienced negative net absorption in the third quarter, and the I-57 Corridor achieved the highest total quarter with just over 1.5 million square feet absorbed.
New construction continues to be relatively non-existent in most markets as they try to achieve supply-demand equilibrium. There are nearly 13 million square feet of projects underway, a historically small total for Chicago which holds nearly 1.2 billion square feet of inventory. The Southeast Wisconsin market has the most construction activity with 3.4 million square feet of projects underway.
There is a supply-demand-pricing disconnect in the user sale market, as there is little inventory to meet demand, and the pricing for what is available is causing buyers to pause. In terms of institutional players, overall sentiment appears optimistic as capital sitting on the sidelines is ready to be deployed. Chicago’s strength as a major market with diverse industries bodes well for overall health.
For more expansive submarket-level detail, please download our report from lee-associates.com, or reach out to us or any of our Chicago-based professionals.
Zach Geller is market analystics director and Brandon Pappas vice president of data analytics with Lee & Associates of Illinois.
