Over the past two years, big box speculative construction deliveries resulted in a steadily increasing vacancy rate, even while net absorption remained positive. But for the first time in that span, according to a Colliers International report looking at the first quarter of 2018, the big box vacancy rate in the Chicago metro decreased by 41 basis points to 9.23 percent.
These numbers suggest that, overall, the Chicago market has responded to the surplus speculative space that has come online but remained unleased. One submarket is bucking this trend, however, as massive projects continue to go up along the I-80 Corridor.
One factor for the improved vacancy during the first quarter of 2018 were the twenty new leases signed in big box buildings, totaling 3.7 million square feet, the best quarterly new leasing volume since the fourth quarter of 2016. This activity, combined with two build-to-suit completions and 2.8 million square feet of new vacancies being introduced during the quarter, resulted in a net absorption total of 3.5 million square feet.
The big box vacancy rate is the highest, at 11.38 percent, among buildings 200,000 to 499,999 square feet. The appetite for larger facilities bears out in the numbers, as the vacancy rate decreases in larger and larger buildings. Those between 500,000 and 749,999 square feet have a 7.22 percent vacancy rate, and that number falls to 6.77 percent for buildings greater than 750,000 square feet.
In terms of total inventory, the I-80 Corridor is neck and neck with the I-55 Corridor, which each have, respectively, 55,804,892 and 57,427,689 square feet of space. But whereas I-55’s inventory is locked up in 137 buildings, the I-80 Corridor nearly matched it in fewer buildings, only 82.
This is in keeping with the massive product going up in the I-80 Corridor. In fact, the five largest big box spaces available for lease are all in the I-80 Corridor. The 1,220,140-square-foot Rock Creek Logistics Center and the 1,026,000-square-foot Core5 Logistics Center I-80, both in Joliet, lead the way, followed by Crossroads 55 in Channahon, 100 E. Millsdale Road in Joliet and 30260 Graaskamp Boulevard in Wilmington. These five locations alone account for over 5 million square feet of industrial space.
There was only one Chicago submarket in all of Illinois that delivered new big box supply last quarter: the I-80 Corridor, where 2.2 million square feet came online in Q1 2018. The area also leads in square footage under construction; the I-80 Corridor’s 2,311,519 square feet is more than the next four submarkets combined.
Fifteen big box construction projects totaling 5.7 million square feet are under construction, over 40 percent of which, by square footage, is occurring in I-80. This total constitutes about a third of the 17 million square feet that was under construction one year ago.
Net absorption was strongest in the I-80 Joliet Corridor, as build-to-suits in this desirable area counter much of the unleased speculative space. For example, a 1.25-million-square-foot build-to-suit for IKEA was completed during the quarter.
Designed and constructed by Lexington, Kentucky-based Gray Construction, the new Midwest warehouse for the Swedish furnishings chain will serve inventory needs of stores throughout the Midwestern United States, as well as customer fulfillment. The project is unique in that the center bays of the structure contain a 125-foot automated storage system that rises above the balance of the building.
For new spec deliveries to the market last quarter, among the largest was a 1-million-square-foot distribution center at Crossroads 55 in Channahon. Venture One Real Estate developed the building in a joint venture with USAA Real Estate Company.
Amenities include 40-foot clear-height, 100 docks and trailer parking for 291 (expandable to 596). Colliers International has been retained to market Crossroads 55, on which Clayco served as the design-builder and Forum Studio (now BatesForum) was the project architect.
Colliers amended their definition for a big box building last year to better represent the market, lowering the minimum from 300,000 to 200,000 square feet and larger. They otherwise define an industrial big box building as having clear heights of 28 feet or higher and precast concrete being the primary construction material. Chicago’s big box market consists of 554 facilities totaling 244.5 million square feet, of which 79 percent are institutionally-owned and the remaining 21 percent being owner-occupied.
As the I-80 Corridor shows, tenants are hungry for extremely large, Class A warehouse space with good interstate accessibility. With the implications of e-commerce to commercial real estate showing no signs of slowing, areas like the I-80 Corridor look to be active for some time to come.