Savills’ recently released its Q1 2023 Industrial Report, and the bottom line? Chicago’s fundamentals have remained fairly stable, but some experts will say the market is shifting.
The vacancy rate has remained below historical averages, falling 40 basis points year over year to 4.7%. The construction pipeline is robust, with developers are responding to high demand for quality, well-located space, but some building types, such as cold storage, have very few available options. But, despite this, deal volumes remained healthy, led by Target Corporation’s 1.2 million-square-foot lease at the Rock Creek Logistics Center in Joliet.
Savills also reported that there are beginning signs of softening in the market, indicating a potential shift in direction. Top-level market dynamics seemed healthy during this period, but that’s not to say there weren’t cracks in the façade. More sublease offerings were brought to market, even in the most popular submarkets, and available space remained on the market longer, including in completed new construction.
Net absorption surged throughout 2021 and 2022 but has returned to near historical averages, with landlords responding to the softening by offering increased concessions, like tenant improvement allowances. Meanwhile, construction was reported to have peaked, and development is expected to slow in the near to medium term.
Asking rents were still near all-time highs in Q1, with new construction in infill locations demanding record-high pricing. But there was a 1.1% retreat in rents over the previous quarter, marking the first pullback in over two years. Landlords have generally held the line on pricing, based on the report, but their recent willingness to provide greater concessions should produce downward pressure on overall effective rents.
