Build-to-suit projects accounted for 4.6 million square feet of new industrial construction in the Chicago metro this past quarter. That figure is a record high for the cycle and just one of numerous impressive benchmarks that the sector hit.
Colliers International tracked the 68 largest construction projects that were active across the metro in the third quarter of 2019. The two largest were build-to-suits: the 1.5-million-square-foot Diageo North America project that Seefried Industrial Properties is developing in Plainfield, Illinois and FoxConn’s 993,460-square-foot LCD plant underway in Mount Pleasant, Wisconsin, developed by Hammes Company.
Among the other large build-to-suit projects under construction, Venture One Real Estate is developing a 590,525-square-foot office, processing and assembling facility for healthcare provider Fresenius Kabi in Pleasant Prairie, Wisconsin. San Francisco-based Digital Realty demolished the former Motorola Headquarters in Franklin Park, Illinois to make way for a 470,000-square-foot data center, close to an existing center they operate in the O’Hare-adjacent village.
As impressive as build-to-suits have been this year, speculative construction still accounts for more than two-thirds of development. Of those 68 projects, 49 were spec, totaling 11.8 million square feet. The largest of these are LFI Real Estate’s 879,040-square-foot project at 25101 S. Ridgeland Avenue in Monee, Illinois; Panattoni Development’s 764,500-square-foot project on Orchard Gateway Boulevard in Aurora, Illinois and the 748,300-square-foot development that Logistics Property Company is spearheading at 4250 120th Avenue in Kenosha, Wisconsin.
Whether build-to-suit or spec, all of this development signals that demand for industrial space in the Chicago region remains at an all-time high. Even with new buildings coming online, net absorption totaled 9.2 million square feet in the third quarter, the greatest quarterly total since the current cycle began.
The year-to-date net absorption through the first three quarters of 2019 was 17.6 million square feet, outpacing the 16.2 million square feet recorded at this point last year. The third quarter alone saw 111 new leases and/or expansions totaling 8.2 million square feet.
The I-80 corridor remains the locale for big box projects as three of the largest deals this quarter were new leases in Joliet, Illinois. Target took 1.2 million square feet at 3300 Channahon Road, UNIS Logistics leased 826,755 square feet at 3901 Brandon Road and NFI Distribution signed a deal for 374,460 square feet at 251 Laraway Road.
There were 27 construction projects adding up to 8.8 million square feet delivered in the third quarter. Despite this, the robust leasing activity means that the area’s overall vacancy rate dropped 10 basis points to 6.15 percent. That’s the lowest vacancy rate in more than 18 years and it represents the eighth straight quarter of declining vacancy. The Colliers report cautions, however, that the vacancy rate may temporarily increase over the next six months on the back of newly delivered spec construction.
Counterbalancing this, Colliers points to a number of potential users they are tracking that are looking at options in the market. With several seeking more than 500,000 square feet, 2019 may wrap up with even more net absorption should the leases sign off during the fourth quarter.