Industrial showed continued vigor in Chicago in 2018. In fact, activity in the asset class ended the year strong by just about every benchmark available, according to new research by Colliers International.
Net absorption across the market totaled 16.2 million square feet in 2018. This adds to the 61.7 million square feet that Chicago’s industrial market has recorded over the past three years, an impressive tally that easily accounts for the strongest period of the current real estate cycle.
Vacancy also improved, dropping 46 basis points to 6.34 percent year-over-year, the lowest rate the market has recorded since the first quarter of 2001.
The greatest vacancy rate decrease in the past 12 months occurred in the Northwest Suburbs submarket, where the rate declined by 613 basis points to 5.10 percent. This was due in part to the demolition of the former Motorola campus in Schaumburg, but there was also significant new leasing activity. Streamwood logged 456,529 square feet of new leasing activity in 2018, followed by the 365,657 square feet in Arlington Heights, 94 percent of which closed in the fourth quarter.
Meanwhile, the vacancy rate in the I-80 Corridor increased by 372 basis points over the course of 2018 to 11.60 percent, largely because of speculative construction completions and new vacancies. Channahon carries much of this burden with 2,387,445 square feet available in the fourth quarter, an 88.7 percent vacancy rate. The village saw more than 1.44 million square feet of new supply come on line last year, but also an equal amount of new vacancies at over 1.45 million square feet.
Construction deliveries dropped off a bit during 2018, which should allow much of the recently-completed space across the market to find tenants. There were 57 buildings totaling 13.5 million square feet delivered during the course of the year, far below the record 24.8 million square feet of deliveries that 2017 saw.
However, there is a new wave of development underway. During the course of 2018, 81 buildings totaling 23.1 million square feet started construction, a 74 percent increase over the 13.3 million square feet of construction starts recorded in 2017. There are now 61 buildings totaling 19.0 million square feet under construction.
Another indicator that the local industrial market continues to thrive is the more than 500 new leases and lease expansions greater than 10,000 square feet recorded in the Chicago industrial market last year. Totaling 32.7 million square feet, this is the greatest annual new leasing volume since 2015. The I-55 Corridor led the region with 6.40 million square feet of new leasing activity last year, followed by 3.19 million square feet in the O’Hare submarket.
The largest new lease completed during 2018 was S&S Activewear’s 750,314-square-foot build-to-suit lease at Prologis Park 355 in Lockport. In all, there were 17 new leases/expansions greater than 300,000 square feet signed over the course of the year including two other build-to-suits: a 705,661-square-foot lease with Kellogg’s and a 675,840-square-foot lease with Berner Food and Beverage.
The largest user sale of the year occurred at the end of the fourth quarter. A New Jersey-based third-party logistics firm, NFI, purchased a 992,640-square-foot speculative facility recently developed by Hillwood Development Corporation in Joliet.
The property, located at 100 E. Millsdale Road, is part of a 240-acre master planned business park with proximity to both BNSF and Union Pacific intermodal facilities. The building features 36-foot minimum clear height and parking for 222 cars as well as 266 trailers.