Industrial in and around Chicagoland has seen some slowdown in both quarter-over-quarter and year-over-year absorption, but occupier demand remains strong, based on JLL’s Q1 Industrial Insight Report.
Overview
Vacancy rates have remained relatively stable, hovering in the high 2% range, which is almost unchanged from the previous year. Asking net rents have risen to $6.75 per square foot, which is almost a dollar higher than the start of 2022. Because of this, JLL expects landlords to continue to push higher face rates while annual escalation rates continue to climb.
Activity
The largest new lease of Q1 was a 1.4 million-square-foot commitment by Target for a spec-to-suit property at NorthPoint Development’s Third Coast Intermodal Hub in Joliet. While the building was originally designed to be 1.2 million square feet, the retailer came in and preleased the space while under construction and was able to expand the footprint.
The development pipeline in the region remains robust, based on the report, although project timelines are elongating. There are currently 37.4 million square feet underway, but not all will deliver in 2023. In Q1, JLL tracked 11 buildings that started totaling 2.8 million square feet, 2.6 million square feet being speculative.
Looking forward, there are only 13 spec projects in the planning stages, with six in the 250,000–500,000-square-foot range, four in the 500,000–750,000-square-foot range and three in the 750,000–1.0 million-square-foot range.
Outlook
With big box product in short supply, JLL reported that pending deals may take two more of the spaces off the market soon. As a result of Solo Cup’s relocation to the Cubes at Country Club Hills, their former 1.5 million-square-foot space in University Park will be one of the largest second-generation Class A vacancies across the Midwest.
As for the investment sale market, it remains slow, as large-scale portfolios are few and far between. However, Venture One Real Estate was able to recapitalize a large three-market portfolio of 54 assets with DRA Advisors, which included 44 buildings locally. Single asset deals have also launched in Q1, and JLL said in a few months there will be better visibility on the new normal for cap rates.
Finally, JLL said another notable driver for Chicagoland is the growing influence of data centers due to the region’s strong power supply. Microsoft recently acquired a 250,000-square-foot spec shell building in Hoffman Estates from Yampa Investments, plus an additional 16 acres of retail-zoned land which will expand the footprint of the $200 million data center campus already under construction.