One would think that Chicago’s industrial market was already racing ahead at top speed. But last quarter, the sector found another gear as 8.67 million square feet of space was leased up.
That’s a 20 percent increase from the first quarter of 2019, according to Avison Young research. Nearly half of that leasing activity occurred in three submarkets: Lake County, the US-64 corridor and the I-55 corridor.
Logistics, e-commerce and other industrial businesses signed more than 1.3 million square feet of leases in Q2. Among the 266 transactions that Avison Young tracked in the second quarter, the average size of each deal was 30,542 square feet.
Wholesale Interiors signed the largest lease of the quarter, as the commercial furniture supplier and distributor expanded and relocated into 549,588 square feet at 2805 Duke Parkway in Aurora, Illinois. Owned by Duke Realty, the property is cross-docked with 32-foot clear height, 74 dock doors, four grade-level drive-in doors, 73 trailer parking positions and 153 car parking spaces.
The largest contributor to net absorption was RJW Transport, as the freight transportation services company inked a long-term, 416,000-square-foot lease at 50 Southcreek Parkway in Romeoville, Illinois. This is RJW’s seventh location in the Chicago area, confirming that the local market is still essential in the logistics and e-commerce industry.
“Chicago’s industrial market remains in a growth mode, with strong tenant demand and a deep speculative construction pipeline that is being filled at a steady pace,” said Chris Lydon, a principal in Avison Young’s Chicago office. “We expect this level of activity to continue for the foreseeable future.”
Developed by the Pizzuti Companies, 50 Southcreek Parkway is situated on a 22-acre site in Pinnacle XXII, a spec, LEED-certified project that features daylight harvesting skylights, upgraded insulation, car parking, docks and trailer storage. The RJW lease has also helped fuel the recent uptick in activity in the I-55 corridor.
According to Avison Young, the construction pipeline increased slightly during the second quarter from 18.3 million square feet to 19.3 feet million square feet—over 70 percent of which is being built on speculation. However, the largest construction start of Q2 is a build-to-suit project: the 1.5-million-square-foot facility that Seefried Industrial Properties is developing for liquor distributor Diageo North America in Plainfield, Illinois.
There were a total of 16 buildings delivered to the market during the quarter, the largest being 12508 38th Street in Kenosha, Wisconsin. The 800,000-square-foot build-to-suit project was built for Uline, the ever-growing distributor of shipping, industrial and packaging materials.
Infill development is of special interest to some investors and developers as they seek to tap into submarkets that support urban areas with strong population bases. The O’Hare submarket is still the most coveted infill area for leasing and development, with developers pushing land prices up around $25 per square foot.
“Institutional investors remain bullish on the Chicago market and the O’Hare submarket in particular,” said Lydon. “As long as this institutional demand is present, the construction cycle will continue at a steady pace. One exception is the I-80 corridor where additional absorption is needed before new buildings could break ground.”
In the O’Hare submarket, low inventory and robust demand are also pushing industrial sales to record highs, reaching levels only seen once before during a rare spike in 2015. The past six quarters have witnessed significant pricing growth, climbing to an impressive $75 per square foot. The average price per square foot grew more than 50 percent from Q1 2018 to last quarter, representing an average annual growth of 33.5 percent.