In 2023, the Chicago industrial market experienced oversupply relative to demand. However, in the first quarter of 2024, there has been a notable shift towards a more balanced equilibrium between industrial supply and tenant demand, according to Collier’s first quarter Chicago industrial market report.
During the first quarter of 2024, 19 new industrial buildings, totaling 6.6 million square feet, were completed in the Chicago market. 14 of these projects, comprising 5.5 million square feet or 84% of the total completed area, were constructed on a speculative basis, marking the lowest total for speculative deliveries since the second quarter of 2023. Consequently, this activity led to a four-basis-point increase in the overall vacancy rate, reaching 5.29%.
Following an increase in the fourth quarter of 2023, net absorption experienced a significant decline in the first quarter of 2024. The quarter ended with a positive net absorption of 5.5 million square feet from January to March 2024.
New leasing activity continues to show strength, nearly matching the levels observed in the previous quarter. A total of 123 new leases and lease expansions exceeding 10,000 square feet were finalized, totaling 8.9 million square feet between January and March. This represents an 11 percent increase from the 8.0 million square feet recorded in the previous quarter. Additionally, two new leases greater than 500,000 square feet were signed including a build-to-suit lease of 1.2 million square feet for GE Appliances in Morris.
In the first quarter of 2024, the construction pipeline continued its downward trend. By the end of March, an additional 8 industrial construction projects, totaling 2.0 million square feet, had begun during the quarter. This brings the total space under construction to 12.5 million square feet across 40 buildings. Of this total, 53 percent, or 6.6 million square feet, is being built on a build-to-suit basis. This marks the first time since the second quarter of 2021 that build-to-suit construction has surpassed speculative development.
The good news for the Chicago industrial market is that despite the increase to the overall vacancy rate, the reduction in speculative construction starts over the past three quarters will ultimately result in the absorption of more space. This will generate demand for additional new space, leading to the initiation of the next wave of speculative construction.
Some additional information from the Colliers report:
- Over the past five quarters, the vacancy rate has shown a steady increase, yet it is anticipated to begin declining as developers deliver less new speculative product in the Chicago market.
- The vacancy rate has fallen below 4% in eight of the Chicago market’s 22 submarkets, led by the Central DuPage where the vacancy rate dropped to 1.46% by the end of March.
