While it’s still too early to know for certain how the downtown office market will react to the post-pandemic workplace, new figures are showing that the Chicago area’s industrial real estate market has continued to make headway despite the widespread economic hardship caused by the COVID-19 pandemic. And those following commercial real estate over the last year may not be surprised as the pandemic has led a surge in demand for shipping, distribution and warehousing, largely spurred by ecommerce and data center leasing.
According to a recent report from Colliers, industrial leasing in the Chicago market increased three quarters in a row between Q3 2020 and the first quarter of 2021. Net absorption in the first three months of this year was a whopping 7.2 million square feet — the same number as Q1 2020. The overall vacancy rate for the Chicago area was just 6.88% in the first quarter of this year, while vacancies figures in eight of the 22 submarkets tracked continue to hover near all-time lows.
And as expected, leasing was strong in the first quarter of this year with 13.8 million square feet of industrial space claimed over 150 new leases or expansions. This was a slight, but noteworthy, increase compared to the 11.1 million square feet of leasing activity during the same period in 2020. Industrial continued to perform in the Chicago metro even as unemployment totals in Illinois skyrocketed during the spring and summer seasons last year.
But there’s still more on the way. Last quarter saw the delivery of 8.6 million square feet over 15 newly completed buildings while another 24.2 million square feet of industrial space remains under construction. Developers and investors continue to show confidence in the market as 42% of the deliveries in the last quarter were speculative projects. Meanwhile, build-to-suit continues to outpace spec development by a fairly wide margin.
Additionally, average asking rents have been steadily increasing over the last few years, peaking at $4.88 per square foot in Q1 2021. A chart shows that the average rent price bottomed out at $3.98 in 2010, during the Great Recession, but that figure has increased every year since. The average asking sale price for industrial property hit its low point in 2021 at $40.47 per square foot but has also risen steady each year, hitting $47.21 by the first quarter of this year.
The report highlights a wave of build-to-suit developments for various retailers, including a new distribution facilities for Wayfair and Home Depot. Walmart, Lippert Components, AKIRA, Xpedient Logistics, and B&G Foods are a handful of other companies to complete major build-to-suit leases in the first few months of the year.
In terms of submarkets, the I-80 corridor and south suburbs are seeing the most construction and deliveries. Along the I-80 corridor, 2.774 million square feet of industrial space was delivered this past quarter, while another 3.796 remains under construction. And in the south suburbs, over 806,000 square feet of space was completed as another 7.6 million square feet remains in the pipeline.