In a streak that began with the third quarter of 2014, the Chicago industrial market again recorded a quarter with at least 35 buildings totaling more than 10 million square feet under construction. The 1.1-billion-square-foot market continues to enjoy declining vacancy rates and robust construction activity in most major submarkets.
According to Avison Young’s Chicago Q1 2019 Industrial Report, the area now has a total of 19.3 million square feet of industrial product under construction, a 57 percent increase year-over-year. Most of this activity is taking place in the I-80 Corridor, I-55 Corridor and Southern Wisconsin.
“The Chicago industrial market continues to show its ability to support this deep construction cycle and remain on a positive trajectory,” said Chris Lydon, a principal in Avison Young’s Chicago office. “The market is being driven by demand from companies expanding or realigning their distribution and light manufacturing networks, as well as from the growing e-commerce sector. We expect to see positive momentum for the foreseeable future.”
Southern Wisconsin added more than 440,000 square feet of speculative construction during the first quarter. This includes Darwin Realty’s 1-million-square-foot spec project in Kenosha, the largest building currently under construction. That property is scheduled for delivery in the fourth quarter this year.
Other notable construction projects underway are Hilco Real Estate’s 999,900-square-foot development at 35th Street and Pulaski Road on Chicago’s Southwest Side, an 879,040-square-foot project by Location Finders International in Monee and CenterPoint Properties’ 826,755-square-foot development in Joliet. All are being built on spec.
Despite the significant amount of construction in the pipeline, the vacancy rate across the entire metro is currently at 5.9 percent—a 20-basis-point drop since last quarter. The I-80 corridor, South Chicago and the I-90 East Corridor observed the largest gains, dropping 110 basis points to 10.9 percent, 90 basis points to 4.3 percent and 70 basis points to 3 percent, respectively.
Due in part to all of the new spec development in the area, Southern Wisconsin vacancy increased 140 basis points to 7.9 percent. Fresenius Kabi’s lease of 590,525 square feet in Pleasant Prairie helped offset the impact of new construction and contributed to a relatively neutral -35,000-square feet net absorption.
Other submarkets that saw rising vacancy rates were the I-88 Corridor, which was up 80 basis points to 6.1 percent following new spec construction, and Lake County where slightly weaker quarter-to-quarter leasing activity led to a 50 basis point rise to a still very strong 5.3 percent.
During the first quarter of 2019, the Chicago industrial market witnessed 242 lease signings, totaling 7.2 million square, a 13 percent decrease from the previous quarter. The areas with the highest leasing activity were the I-80 Corridor, the I-55 Corridor and the O’Hare submarket, which accounted for 3.1 million square feet and 43 percent of all leasing activity for the quarter.
One significant transaction in the I-55 Corridor was Bed Bath & Beyond’s 361,176-square-foot lease at 850 Veterans Parkway in Bolingbrook. Other new leases around Chicagoland include First Logistics’ 331,059 square feet at 2075 W. 43rd Street in Chicago and Madden Communications, which leased 301,079 square feet in Somers, Wisconsin.