With over 1.3 billion square feet of inventory, the Chicago MSA still reigns as the country’s largest industrial market. But how does it compare to other markets at the end of the most disruptive year in living memory?
According to new data from Lee & Associates, just over 99 million square feet of industrial space was absorbed across the country during Q4 2020, making it the strongest quarter on record. The grand total for U.S. industrial absorption in 2020 was 203.7 million square feet, a 27 percent increase over the prior year’s already strong performance.
It’s evident that the pandemic and ensuing lockdowns have accelerated the online shopping trend, leading to more demand for logistics and warehouse space. This phenomenon played out in the Chicago market as well.
Net absorption totaled 8.12 million square feet in the Chicago market during the fourth quarter. This capped off three quarters of exponential growth in 2020; the market backtracked in Q1 with -186,163 square feet of absorption, but things rebounded in Q2 with 208,542 square feet and then 2.99 million square feet in the third quarter.
That uncertainty early in the year may have initially hobbled the Chicago market as the 11.1 million square feet of total absorption in 2020 is down from the 16.3 million square feet recorded last year. Ending on such a strong note, however, bodes well for this sector in this market going forward.
E-Commerce giant Amazon is itself responsible for 10 percent of all leasing volume in U.S. last year. Notably, the company took 546,182 square feet at BridgePoint 290 in Cicero, Illinois and opened a 145,000-square-foot facility in Chicago’s Pullman neighborhood. Development is also underway on two new robotics fulfillment centers in south suburban Matteson and Markham, Illinois.
Looking to bolster their omnichannel offerings and not get swept away by Amazon’s growth, Target, Walmart and other general merchandisers have increased their leasing activity around the country. In Chicago, Target recently took occupancy of a 1-million-square-foot distribution space at 3501 S. Pulaski Road.
While the pandemic pushed many development projects to the back burner, that has not been the case in the white-hot industrial sector. At the end of 2020, according to Lee & Associates data, there were a record 330 million square feet of industrial projects under construction.
Chicago developers set their own records last year, delivering a high-water mark 90 industrial properties throughout the metro. This development activity added 20.7 million square feet of new industrial stock to the local inventory, more than in any previous year.
As attractive as industrial is, the numerous deliveries now underway will likely remain out of sync with demand for the near future. Lee & Associates predicts that vacancy—which currently averages 5.6 percent nationwide—could top 6 percent on average for most of 2021, especially with the 180 million square feet of new space coming online during the first half of the year.
Chicago’s current vacancy rate stands at 6.53 percent. This is down from the 6.81 percent recorded in Q3, but it’s a 55-basis-point rise from the 5.98 percent that the market saw the same time one year prior. It’s unclear where that figure will go with the more than 21 million square feet of space under construction as of Q4 2020—third-most in the nation, behind only Dallas-Ft. Worth and California’s Inland Empire.
The events of the past year have left investors uncertain, if not wholly inactive. Nationally, sales velocity lagged the record-setting pace that preceded the pandemic. Institutional investors and REITs seem to be the only groups looking to acquire industrial properties at the moment.
In the Chicago metro, Hillwood Investment Properties acquired the 879,040-square-foot asset at 25101 S. Ridgeland Avenue in Monee from DeBartolo Development. The new, Class A property in the Bailly Ridge Corporate Center sold for $50.3 million, or $57.22 per square foot.
Other investment activity for the quarter saw W.P. Carey, Inc. acquire the 622,000-square-foot 11811 Oak Creek Parkway in Huntley, Illinois from Weber-Stephen Products in a $39.5 million sale-leaseback. A joint venture of the GSI Family Office and Greco/DeRosa Investment Group sold a three-property industrial portfolio to a discretionary fund managed by CBRE Global Investors; the $111.55-per-square-foot sale included an asset in Bartlett, Illinois.
The pandemic has created fissures in the labor market that may take years to repair. For those companies with a toehold in the e-commerce arena, however, business has never been better, which bodes well for big-box and last-mile distribution facilities in key markets.