Job growth, logistics demand push industrial sector Matt Baker July 22, 2019 Share on Facebook Share on Twitter Share on LinkedIn Share via email The surge from e-commerce is more than enough to bolster the industrial real estate sector. But a boost in employment among manufacturing, transportation and related fields is also helping to propel the historic run that this asset class is on. Last quarter, unemployment in the Chicago metro decreased 60 basis points from the previous year to 3.8 percent. The manufacturing sector added 5,300 jobs and the Trade, Transportation and Utilities sectors added another 9,100 in that same period, good for a 1.3 and 1.0 percent increase, respectively. According to a new second quarter report from Cushman & Wakefield, the Chicago industrial market was lively, recording 13.6 million square feet in new leasing activity. The average lease size grew to 62,248 square feet from 56,270 square feet year-over-year. Nearly half of all leasing, 42.9 percent, occurred in three submarkets: the I-55 Corridor, Southeast Wisconsin and Southern Fox Valley. These regions totaled 5.8 million square feet of new leasing as of Q2. The largest lease of the quarter was LTD Commodities renewing for 694,367 square feet in Aurora. This was followed by another renewal, as Samsung re-inked its 648,960-square-foot Romeoville space. The largest new transaction was an undisclosed tenant subleasing 549,588 square feet within the Southern Fox Valley submarket—the largest sublease signed since mid-2013. Though the 6.3 million square feet of space absorbed through Q2 was a 27.1 percent year-over-year decline in net absorption, tenants moving into previously leased space should up absorption totals. Vacancy, on the other hand, decreased for the fifth straight quarter, down 130 basis points year-over-year to 5 percent. This is the lowest recorded vacancy since mid-2000. Following numerous spec deliveries, the I-80 corridor had the highest vacancy rate at 10.6 percent, followed by the I-55 corridor at 9.7 percent. The two tightest submarkets were northern Fox Valley (2.3 percent) and the south suburbs (2.4 percent). Construction activity remained strong during the second quarter. There were 7.5 million square feet of product delivered which, year-over-year, accounts for a 36.2 percent increase in space completed. The majority of new space was in the I-55 and I-80 corridors, which combined for more than 2.7 million square feet of delivered space. Three quarters of the 16.4 million square feet under construction last quarter was speculative. According to Cushman and Wakefield, developers are building more mid-sized buildings within population dense submarkets; currently 28 out of 48 properties under construction are between 100,000 square feet and 300,000 square feet in size. This trend is most prominent is submarkets such as Western Cook County and South DuPage. Due to low vacancies, construction is gaining momentum in previously dormant submarkets. Northwest Cook County, for example, had 162,875 square feet under construction last quarter and there were 540,555 square feet underway in southern DuPage. Throughout the first half of 2019, users purchased 5.8 million square feet of industrial product, a 40.7 percent increase year-over-year, with 14.3 million square feet of investment sales transacted over the same period. One of the larger investor sale transactions was Brennan Investment Group’s acquisition of 308 S. Division Street in Harvard, Illinois. The 1.3-million-square-foot property sold for $26.6 million, or $19 per square foot. Brennan also scooped up 2101 Dralle Road in University Park, Illinois for $23 million. At 650,000 square feet, this broke down to $35 per square foot. Looking forward, the Chicago industrial market is poised for continued growth throughout the second half of 2019. Cushman & Wakefield expect new leasing activity to rise as several large leases are expected to close in the coming quarters. Construction activity will also remain active, especially in infill submarkets close to labor and consumers.