After several years of robust industrial activity, Chicago’s O’Hare submarket continues to recalibrate, presenting a mix of challenges and opportunities for tenants, according to a Mid-Year 2024 review by Brown Commercial Group.
The O’Hare submarket was one of five Chicago industrial submarkets that saw record activity during the pandemic and has since recorded negative absorption — reaching -1.3 million square feet — during the past 12 months.
Tenants looking for large blocks of space have several options, while those seeking spaces smaller than 50,000 square feet continue to face a mix of challenges. Some smaller businesses are holding onto their spaces, deferring a move or expansion due to economic conditions. There is notable demand for smaller spaces, so those spaces often lease quickly.
“There are a surprising number of options available for tenants in the 5,000 to 30,000-square-foot range, but we haven’t seen a notable drop in rental rates,” said Candace Scurto, a broker with Brown Commercial Group. “We are still waiting for landlords to become more flexible on rents, but that hasn’t happened yet.”
According to CoStar research, industrial rents in the O’Hare submarket average $10.90/SF, which is approximately 15% above the metropolitan area’s average. Rents increased by 6.0% annually, on par with the overall Chicago market.
Scurto noted that some business owners are hesitant to commit to new space and are getting creative to make their existing space work. If their existing lease is below the current market rental rates, they are delaying a move that would lead to higher rents. “They are trying to be more efficient with space and are figuring out creative ways to make the space work for the short term,” she said.
A review of CoStar data shows that economic uncertainty and other factors are driving the softening industrial demand across the Chicago market. There are plenty of indications that the worst of it is over, however. Despite some negative markers—rising availability and negative absorption—the demand fundamentals, coupled with little to no competition from new developments, should keep the O’Hare submarket in relative balance for the remainder of 2024.
Here’s a look at other key fundamentals:
Construction – the O’Hare submarket has approximately 860,000 square feet of industrial space under construction, with an availability rate less than 15%. Most of this space is earmarked for the 750,000-square-foot Prime Data Center that is set to deliver in 2025.
Leasing — There is a large amount of sublet space that was vacated over the past 12 months, including 640,000 square feet from 22H2 through 23H2 and 1.3 million square feet of direct and sublet space over the past 12 months. Most of the recently signed deals were under 150,000 square feet.
Vacancy – Space availability remains tight, particularly in smaller spaces. Market dynamics pushed the vacancy rate up to 4.4%, yet it remains historically low. There is strong demand for space in the O’Hare submarket due to its airport-centered location and strong cargo and logistics network.
Rents – Rents are increasing at a brisk 6% pace, averaging $10.90 a square foot, but those levels may soften, according to CoStar research.
