The Interstate-55 corridor holds roughly 120 million square feet of industrial space. A tenant who needs 15,000 to 30,000 square feet of it today can choose from nine options, according to Packy Doyle, Executive Vice President of Industrial Services at NAI Hiffman. Double the requirement to 30,000 to 50,000 square feet and the list only doubles with it.
That arithmetic explains the shape of Chicago’s second quarter. Of the 153 industrial leases signed across the metro in Q2 2026, 79 landed between 20,000 and 100,000 square feet and totaled 3.7 million square feet, according to George Cutro, Director of Industrial Research at JLL. JLL’s Q2 report credits shallow bay occupiers with driving the quarter’s leasing activity and the deal count rose from 133 in Q1 even as total volume fell.
That volume reached 10.6 million square feet, down from 14.4 million in Q1 but the fourth consecutive quarter above 10 million, per JLL. Vacancy slipped 20 basis points to 4.5%, net absorption of 5.8 million square feet compared with 648,700 square feet a year earlier and average asking rent reached $8.12 per square foot.
Big box supplied the volume. JLL points to KeHe Distributors’ 1.2-million-square-foot lease of a speculative building at Cherry Hill Business Park in Joliet and Hyundai Translead’s 906,500-square-foot manufacturing facility at Clarius Park Joliet, the company’s second major Chicago deal of the year.
Shallow bay supplied the deals and Cutro said the tenants signing them are not primarily logistics users. Construction and building materials companies accounted for 19 of the 88 shallow bay leases JLL tracked in Q2 with logistics second at 12.
Doyle sees the sharpest pricing pressure at the small end. Rents diverge around the 30,000-square-foot mark, he said, with smaller suites pushing rates harder than 40,000- to 50,000-square-foot spaces because so little functional supply exists beneath that line. Velocity on well-located 20,000- to 40,000-square-foot space looks much as it did two years ago, he said.
“This product size range had been the constant while big box had slowed down,” Doyle said.
Landlords are giving where they can to hold face rents, according to Doyle: roughly two months of abatement on a five-year term, a bit more on longer deals and tenant improvement allowances of $2 to $5 per square foot depending on the space, the buildout and whether the deal is new or a renewal. Specialized buildouts still get done when term, credit, security and restoration language line up, but owners have limits.
“While you certainly prefer a tenant that has unique components or buildouts in their space that makes them a sticky tenant, there comes a time when you don’t want to play the role of the bank and fund all of those tenant specific builds, nor alter the functionality of that space,” Doyle said.
The scarcity shows up most clearly at renewal. Tenants that can leave the market to save on rent will, Doyle said. Most cannot.
“They will have sticker shock at the first renewal proposal, they will then go out and learn the market and more often than not, they come back to sign that renewal,” Doyle said. “Moving is difficult, costly and disruptive so if the space works and their rents are in line with where the market has grown to then they will stay put.”
Relief from the construction pipeline is thin. Three speculative shallow bay projects broke ground in Q2, adding 232,600 square feet and bringing the metro’s spec shallow bay pipeline to nine buildings totaling 740,700 square feet, according to Cutro, with two of the nine in North Kane County. JLL counts 14.2 million square feet under development across the market.
Jeff Lanaghan, SVP of Development and Investments at Becknell Industrial, said the math explains the gap. A 50,000-square-foot multi-tenant building costs more per square foot than a 500,000-square-foot bulk facility because it loses economies of scale: more demising walls, more storefront and office buildout, more drive-in doors, separate metering, more parking and more site work relative to the building. A $20-per-square-foot improvement allowance on a demised small bay suite is largely consumed by the demising itself, he said, while half that allowance on a 250,000-square-foot space covers demising and a comparable office with money to spare.
“The construction is not necessarily less sophisticated because the building is smaller; in many ways, it requires more precision,” Lanaghan said. “In small bay, there is very little room for inefficiency because every design decision affects the economics.”
Rents have responded. Lanaghan sees shallow bay commanding roughly a 30% premium over bulk warehouse space and rents have improved across many Chicago submarkets. Even so, he said, they do not always justify new construction once land basis, site constraints and the cost of flexible, tenant-ready space are counted. Sites that work pair realistic pricing with labor, transportation access and room for modern parking, loading and stormwater. The ones that fail are undone by land basis, entitlement risk, environmental conditions or irregular geometry.
Where the fundamentals align, Lanaghan said, small bay can be compelling and Becknell’s construction background lets it evaluate an older building through both an ownership lens and a builder’s lens.
Cutro is watching interest rates and prospective tariffs with Canada as the variables most likely to end the run of 10-million-square-foot quarters. Neither would loosen the small end of the market where demand has never been the constraint.
