Slowing. It’s a word that commercial real estate pros don’t want to hear. But it’s the one that Transwestern chose when describing the industrial market in the Chicago region.
And it’s hard to argue. According to Transwestern’s third quarter Chicago industrial market report, leasing activity in the local industrial market dropped during the third quarter to its lowest level since 2005.
At the same time, Transwestern reported, sublease availability grew to its highest level in CoStar’s recorded history.
According to Transwestern, net absorption in the Chicago industrial market totaled 3.66 million square feet in the third quarter. This figure was made up of 3.2 million square feet of warehouse-distribution space and 441,440 square feet of manufacturing space.
The south suburban Chicago submarket recorded the highest absorption in the third quarter, totaling 1.27 million square feet.
Leasing activity in the third quarter came out to just 6.5 million square feet, the lowest this figure has been since 2005.
There were some notable leases recorded during the quarter, though. Transwestern pointed to RJW Logistics Group, which leased 639,917 square feet in Joliet, and Pregis, which leased 477,115 square feet in Elgin.
Local industrial vacancy rates remained low, even with the slowdown in leasing. Transwestern reported that the direct vacancy rate decreased in the Chicago industrial market by three basis points to 5% in the third quarter.
Manufacturing space ended the quarter with a direct vacancy rate of 3.6% and an overall vacancy rate of 4%. Warehouse-distribution space ended the third quarter with a direct vacancy rate of 5.5% and an overall vacancy rate of 6%.
The lowest vacancy rates were in the McHenry County submarket, with rates of 2.2% direct and 2.4% overall. The highest vacancy rates were in the Kenosha submarket, with 12.3% direct and 12.4% overall, according to Transwestern.
Part of the Kenosha market’s challenges come from a higher level of inventory. Transwestern said that this submarket has seen its industrial inventory expand by 38% during the past five years.
The pace of new industrial construction has also slowed in the Chicago market. Transwestern said that 18.1 million square feet of industrial space was under construction as of the end of the third quarter in the Chicago market. That is a significant drop from the 2023 high of 43.4 million square feet.
Only 2.9 million square feet of new industrial space was delivered in the third quarter of 2024, the lowest since the second quarter of 2020.
According to Transwestern, the development pipeline consists of 94.7% warehouse-distribution space and 5.3% of manufacturing space. About 67.6% of the industrial product under construction has been pre-leased. And nearly 40% of this inventory under construction is located in the I-88 Corridor and Kenosha submarkets.
