Compared with recent years, Chicago’s commercial real estate market registered decreased leasing activity throughout 2017. This trend was evident in the industrial sector, where much spec space remains unleased.
Notwithstanding an increase in new construction, Chicago’s industrial market recorded a 40-basis-point, year-over-year uptick in vacancy, reaching 6.5% in third-quarter 2017. During the first three quarters, 18.3 million square feet was delivered with an additional 12 million square feet under construction.
Most of this construction activity occurred in the I-55 and I-80 corridors, “negatively impacting submarket fundamentals,” per Avison Young’s 2017 Review and 2018 Forecast. A dearth of available, buildable properties in high-demand submarkets is driving developers to seek out in-fill opportunities.
Major industrial activity includes Brennan Investment Group’s plan to develop an 85-acre, tech/industrial business park within the O’Hare submarket. Elsewhere in the region, Bridge Development Partners announced the acquisition of a 54-acre site in Downers Grove, with plans to build three industrial distribution buildings totaling 680,420 square feet.
Major industry drivers continue to be e-commerce and food-related users. This trend is likely to increase due to Chicago’s centralized location and existing infrastructure.
“Although transaction volume will decline again, by as much as 10 percent to 15 percent in major markets, pricing should be buoyed by capital demands from all investors, thus offsetting any slight increases in borrowing costs,” said Earl Webb, president, U.S. operations at Avison Young.
Last year, investment in Chicago’s office market dropped 42 percent year-over-year in sales volume after a record-breaking 2016. For industrial, however investors still anticipate higher returns. Industrial investment dollar volume rose 35 percent to $2.9 billion through the first three quarters of 2017.
A common theme across all asset classes in Chicago, the report found, is that users are choosing to consolidate within existing space. The region’s economic climate remains positive with unemployment trending downward. There were 11,300 jobs added to the market year-over-year as of September 2017—economic growth that is expected to continue in 2018.