As the second quarter of 2018 comes to a close, it’s clear that demand for new spec industrial space hasn’t waned. This is backed up by the numbers in a Colliers International Chicago industrial construction review research update.
At the end of the second quarter of 2018, 35 industrial projects totaling more than 9 million square feet are under construction. This represents a 27.4 percent increase over the 7.2 million square feet under construction at the end of the first quarter, and the greatest quarterly tally since the third quarter of 2017.
One new project is CT Realty’s two-building, 1.34 million-square-foot logistics project in Romeoville, Illinois, within the I-80 Corridor. The $125 million development, Interchange 55 Logistics Park, is slated for year-end completion.
“This project is ideally situated in the heart of the Chicago bulk warehouse and logistics market and will provide users with access to the largest inland port market in the U.S.,” said Carter Ewing, managing partner with CT.
Of this development, speculative projects account for 7.1 million square feet, or 77 percent. During the second quarter of 2018 alone, 3.9 million square feet—equating 72 percent—of spec space was delivered. There have been just shy of 50 million square feet of speculative space across 184 projects since the current development cycle started in 2013.
And proof of demand is in the leases. At the end of June 2018, 62 percent of the speculative space delivered since 2013 has been leased. This figure has increased every quarter over the past year, indicating that demand for new speculative warehouse space is keeping up with new supply.
Some submarkets where speculative projects have been built are faring better than others. While most speculative deliveries have occurred in the I-80 and I-55 Corridors (12.2 and 13.7 million square feet, respectively, delivered since 2013), only 46.9 percent of the space delivered in the I-80 Joliet Corridor has been leased to date. The I-55 Corridor has seen 61.6 percent of its delivered speculative space go under lease.
Meanwhile, the less active submarkets are much tighter. Of the 3.1 million square feet of speculative space built in the I-88 Corridor since 2013, 89.8 percent has been leased, while 81.6 percent of the 2.7 million square feet of spec space built in the Elgin I-90 Corridor has been leased.
The second quarter of 2018 saw the greatest quarterly new construction total since the fourth quarter of 2016, with 20 projects totaling 5.9 million square feet started construction during the quarter.
This suggests that not only is demand continuing to exceed new supply, but we should witness a surge in new development projects. The report forecasts an additional 6.4 million square feet of construction starts to begin during the third quarter of 2018, more than 85 percent of which will be built on a speculative basis.