A drop in demand. A slowdown in leasing activity. And higher vacancy rates. That sounds like bad news for the Chicago industrial market. But in its first quarter 2024 Chicago industrial report, Savills said that industrial activity in the first quarter throughout the Chicago area looked more historically normal than did the boom times the market saw in 2020 and 2021.
As Savills said in its report, fundamentals in the Chicago-area industrial market “reverted to more commonly observed levels.”
According to Savills’ research, the industrial vacancy rate in the first quarter rose 190 basis points from a year earlier to 6.8% in the Chicago area. That marks three consecutive quarters of increased vacancy rates in this market.
The Chicago industrial market saw 2 million square feet of absorption in the first quarter. That’s solid historically, but it’s down significantly from the first quarter of last year, when the Chicago-area industrial market recorded 6.8 million square feet of net absorption.
Developers are reacting to the slowdown in demand for industrial space. Savills reported that there were 11.4 million square feet of new industrial products under construction as of the end of the first quarter. That’s down from 38.4 million square feet under consruction as of the end of the first quarter of 2023 in the Chicago market.
Savills reported, too, that the Chicago-area indusrial market saw 7.1 million square feet of deliveries in the first quarter, down slightly from 7.8 million square feet a year earlier.
This doesn’t mean that demand for industrial space has disappeared. In its report, Savills said that tenants are still seeking high-quality industrial space in the Chicago market. Demand for quality buildings in the I-55 corridor is especially solid, Savills reported.
This submarket remains in high demand because of its reputation as a marquee logistics and distribution market and its strong labor demographics. According to Savills, the I-55 corridor commanded some of the region’s highest asking rents while its vacancy rate held below the greater market average despite the new construction that has taken place here. Savills said that three of the five largest industrial leases executed in the first quarter in the Chicago market took place in the I-55 corridor.
