Is the dearth of new supply during the third quarter of 2018—the lowest quarterly total since 2015—a sign of a downturn? According to the latest research update from Colliers International, it’s much more likely to be the calm before the storm as construction starts increased dramatically this quarter.
There are currently 14.7 million square feet under construction across 50 projects, according to Colliers research. This is up more than 61 percent from the second quarter’s 9.1 million square feet and the greatest quarterly tally since the second quarter of 2017.
And the development looks to continue for some time as 26 projects started this quarter, representing 7.2 million square feet—the largest quarterly new construction start total in over two years and significantly surpassing the anticipated start total of 6.4 million square feet. A new surge in development starts is well underway following a slowdown during the past 12 months.
Is there still a hunger for speculative space? Of the space under construction, spec development accounts for 11.1 million square feet, or 76 percent. Though deliveries were down this quarter, even more of what was completed was done on spec at 81 percent.
Since the current development cycle started in 2013, 374 buildings totaling nearly 96 million square feet have been added to the overall inventory. Of the speculative space delivered in that time—51.4 million square feet among 192 projects—approximately 65 percent of it is leased. This figure has increased each of the past five quarters, indicating that demand for spec warehouse space has kept up with new supply and the market is not being overbuilt.
Most of the development activity has occurred in the I-80 Joliet Corridor and I-55 Corridor submarkets, where 45.6 percent of the overall completions and 51.8 percent of the speculative completions have occurred. The largest construction start this quarter was the development of a 879,040-square-foot speculative facility in the Bailly Ridge Corporate Center in Monee, Illinois.
A joint venture of DeBartolo Development, Location Finders International Real Estate and Canyon Partners Real Estate, construction has begun on the new facility, located at 25101 S. Ridgeland Avenue, and is scheduled to be completed in spring of 2019. CBRE has been tapped to market the new warehouse facility, which will be designed and built by Principle Construction Corp. with additional architectural services by Harris Architects and civil engineering from Spaceco.
Situated on 61.1 acres along the strategic I-57 corridor, the facility can allow for multiple tenants with its flexible design. It will include 36-foot clear heights, 51- by 49-foot column spacing, 70-foot speed bays, 135-foot concrete truck apron, 100 dock doors, four drive-in doors, 346 trailer stalls and 300 car parking stalls.
The Bailly Ridge Corporate Center already includes 2.6 million square feet of Class A office and distribution properties with noteworthy tenants including Amazon, XPO Logistics and Hankook Tires. Current and future tenants located in the corporate center will benefit from tax relief provided by a new Tax Increment Financing District. Monee is located in the South Suburbs submarket of Chicago, where the industrial vacancy rate stands at just 0.9 percent, far less than Chicago market average of 3.6 percent.