It seems developers can’t bring industrial supply to market fast enough. Despite the incredible amount of activity, the Chicago-area vacancy rate declined yet again in the third quarter.
That’s according to the newly released “Chicago Q3 Industrial Market Snapshot” from Cushman & Wakefield. This all suggest that economic omens and geopolitical uncertainty are no match for long-term fundamentals.
“As we head into the final months of 2019, signs point to yet another year of growth for Chicago-area industrial activity,” said Jason West, vice chair, on Cushman & Wakefield’s Chicago industrial team. “Firms like Crate & Barrel, which recently reported that nearly half of its sales are now online, continue to drive demand for large-scale distribution centers with easy access to consumers.”
Construction recently began on a logistics facility in Romeoville, Illinois that Crate & Barrel will occupy to distribute the national home décor company’s wares. Developed by The Pizzuti Companies at Heitman’s Pinnacle Business Center, the 646,380-square-foot building is slated for completion in the third quarter of 2020.
“We’ve already seen more of these big-box deals in 2019 than during the same period last year,” West said, “and with several others expected to close by year’s end, we’re confident in the market’s ability to absorb the new supply.”
On the back of strong demand, the metro’s overall vacancy rate dropped for the sixth straight quarter to 4.9 percent in Q3. That’s better than the 19-year record low of 5 percent that the area recorded last quarter, according to Cushman & Wakefield research, and down 110 basis points from one year prior.
The average asking net rent was essentially unchanged from the second quarter, at $5.42 per square foot, above the year-earlier figure of $5.34. Meanwhile, net absorption totaled 6.8 million square feet in Q3—continuing a chain of 35 consecutive quarters of positive absorption.
Construction activity also remained strong market wide. Year-over-year completions totaled 14.8 million square feet, a drastic increase of 56.5 percent from the third quarter of 2018. There is now an additional 17.8 million square feet under construction—nearly 60 percent of which is being built on spec.
There were eight new lease deals over 500,000 square feet in size executed in the first three quarters of 2019—double the activity through the same period in 2018. With additional transactions expected to close in the fourth quarter, the big box leasing volume should keep well ahead of last year’s levels.
“Many of these big box users are increasingly exploring how automation can improve their bottom line, which helps explain the need for larger buildings with increased power loads, higher ceilings, expanded loading and trailer parking and other features that are not only in demand, but expected,” West said.
Third-quarter leasing accrued to 25.9 million square feet, nearly half of which was concentrated in the I-55 and I-80 corridors, as well as southeast Wisconsin. Cushman & Wakefield was involved in several transactions that contributed to this leasing activity.
These deals included a 1.07-million-square-foot fulfilment and distribution center lease in Channahon, Illinois for an e-commerce company and 543,780 square feet of new, Class A distribution space for Duke Realty at the Airport Logistics Center in Romeoville; both of those transactions closed in September. Cushman & Wakefield also represented Crate & Barrel in their new Romeoville lease.