Demand is soaring to new heights near O’Hare. Literally. According to a new report by Marcus & Millichap, the need to build up is not only smart, but necessary.
Global logistics issues and local cargo bottlenecks have translated into heightened leasing activity near O’Hare Airport, which experienced a 410-basis-point drop in vacancy since March of 2021. That said, though, the active pipeline barely exceeds 800,000 square feet, and due to limited supply, the vacancy rate entering April was just 2.5%.
An increase in warehouse and distribution center construction is crucial, as pre-leasing activity has extended to projects in the proposal stage, but Marcus & Millichap said O’Hare’s density requires an innovative solution.
Multilevel warehouses.
Builders recently began construction on a 600,000-square-foot warehouse in the North Side to be Chicago’s first multistory distribution center. The Goose Island-adjacent parcel drew developers due to the area’s high concentration of e-commerce activity, totaling more than $2 billion of annual sales in a five-mile radius, based on the report.
Chicagoland can expect more of these projects in high-cost areas, such as the North Side and Cook County, where residential proximity supports higher rents. Firms are also using Chicagoland to execute new last-mile delivery concepts. For example, Walmart’s 1.1 million-square-foot automated distribution center is scheduled for completion in Summer 2022, the first of its kind.
Looking forward, Marcus & Millichap reported Chicago’s employment base will overtake pre-pandemic levels before year-end with the creation of 160,000 new jobs, specifically in the sectors of retail trade, transportation, and utilities. Annual project completions are expected to surpass the 25-million-square-foot mark for the first time since 1997 with the help of multiple in-progress large-scale distribution centers along the I-55 Corridor.
Leasing activity is not expected to slow down, leading to a second year of vacancy compression. Metro-wide availability will end 2022 at 4.8%.
Finally, Chicagoland should expect a 6.9% increase in asking rent. This is a multidecade high for rent growth, according to the report, putting the mean marketed rate at $6.95 per square foot. Tight conditions near O’Hare Airport may support above-average rent growth in the area.
