Record-low vacancy, historically sound rental rates and a brimming construction pipeline during the first half of 2019 have brightened the sheen on Chicago’s industrial market. Looking ahead, there are no signs of a slowdown.
According to the newly released “Chicago Q2 Industrial Market Snapshot” from Cushman & Wakefield, the area’s vacancy rate dropped to 5 percent in the second quarter—down from 5.5 percent in the first quarter, 6.3 percent a year earlier and a record 19-year low.
The average asking net rent of $5.44 per square foot is down slightly from the first quarter, but still above the levels attained in 2017 and 2018. Net absorption totaled 2.8 million square feet in the second quarter, the 34th consecutive quarter that this key indicator of demand has remained positive.
“Coming off a huge year in 2018 for new leasing activity and building completions, we were cautiously optimistic about 2019, which has already exceeded expectations at mid-year,” said David Friedland, executive director and Chicago industrial group leader for Cushman & Wakefield. “E-commerce, logistics, food and beverage and other industries continue to drive development, sales and leasing activity.”
New industrial developments continue to break ground in 2019, with over 7.5 million square feet delivered through the second quarter, a 36.2 percent increase year-over-year. Phase one of Brennan Investment Group’s ambitious Elk Grove Technology Park is nearly complete, leading Broetje-Automation to sign a long-term lease as the first tenant. The last of four buildings in the first phase should be fully constructed this summer.
Much of the completed inventory in the first half was built on a speculative basis, with a current vacancy rate of 79.4 percent. Cushman & Wakefield projects new supply to total 19.8 million square feet for all of 2019, above the 11.6 million square feet completed in 2018. Midwest Industrial Funds, for example, is building a 303,601-square-foot industrial building within the DuPage Business Center at 2525 Enterprise Circle in West Chicago, Illinois, the largest spec building to be developed in the Fox Valley submarket.
“The seemingly insatiable demand for industrial space is being driven in large part by the broader shift in supply chains, with a growing focus on last-mile logistics, particularly in centrally located population centers like Chicago,” said Friedland. “Several large transactions are expected to close here over the next two quarters, which will help propel the market into 2020.”
Chicago-area leasing activity totaled 13.6 million square feet in the second quarter. The I-55 Corridor, Southern Fox Valley and Southeast Wisconsin submarkets together accounted for nearly 43 percent of the transactions.
Contributing to the second-quarter total were a number of deals brokered by Cushman & Wakefield. Office and warehousing co-working company CubeWork executed a long-term, 202,259-square-foot lease in Lincolnwood, Illinois, for example, one of the largest to be completed in the Edens Corridor in the past decade.
In Aurora, Illinois, catalog and online merchandise firm LTD Commodities renewed their 694,367-square-foot lease at 1000 Bilter Road, encouraged in part by the willingness of the landlord, Liberty Property Trust, to upgrade the existing infrastructure of the warehouse.
“Despite all the activity, a lot of capital remains on the sidelines – some of it trading in from other sectors—that may lead investors to pursue more opportunistic deals in the coming months,” Friedland said.
