For the second quarter in a row, leasing velocity increased in Chicago’s overall industrial market, totaling 10.1 million square feet during the third quarter of 2018. According to a Research & Forecast Report by Colliers International, the northern submarkets had varying changes to absorption and vacancy, though mostly improved.
The Northwest Suburbs vacancy rate improved for the fifth consecutive quarter—down to 8.55 percent during the third quarter of 2018—and should decline further once demolition is complete on the obsolete industrial portion of the former Motorola campus in Schaumburg. Large blocks of space remain scarce with only six available spaces of at least 100,000 square feet, four of which are currently vacant.
Net absorption totaled 570,129 square feet between July and September, the highest total since the fourth quarter of 2006 when net absorption measured 673,077 square feet. There are two build-to-suit projects now under construction: meat distributor Rana USA Inc. nearing completion on a 326,000-square-foot North American headquarters in Bartlett’s Brewster Creek business park and School Health constructing a 112,505-square-foot build-to-suit facility in Rolling Meadows, 33,334 square feet of which it will lease out.
At 511,120 square feet, the four new leases and one lease expansion during the third quarter notched the greatest quarterly new leasing volume since records have been kept. The bulk of this came from logistics company Expeditors International leasing the entirety of The Opus Group’s 423,726-square-foot 10 Falcon Court in Streamwood.
Looking forward, Colliers projects that speculative development will return to the Northwest Suburbs by the end of 2018 for the first time since 2016. Case in point, Hamilton Partners has demolished an existing structure in Arlington Heights and plans to construct a 138,320-square-foot speculative facility shortly, with plans for an eventual second building on the site.
Spurred on by spec deliveries and tenants moving out, the vacancy rate in the North Suburbs increased over the past year, from an all-time low of 4.04 percent one year ago to 4.87 percent at the end of the third quarter of 2018. Despite this increase, a user looking for at least 100,000 square feet only has three options in this submarket.
With a year-to-date net absorption of negative 119,758 square feet, the North Suburbs is one of only six submarkets to record a negative net absorption tally through the first three quarters of 2018. Hillwood delivered a vacant 236,912-square-foot spec facility in Skokie, but no additional construction projects are underway. However, German copper manufacturer Wieland Metals should soon start on a 110,000-square-foot expansion to their Wheeling facility.
Eight new leases totaling 199,438 square feet were signed during the third quarter of 2018, the largest being Hidden Valley Ranch leasing 51,587 square feet in the recently-completed speculative facility developed by Sitex Group at 1075 Chaddick Drive, also in Wheeling. The largest sale transaction of the quarter involved Prologis taking over ownership of the 345,509-square-foot building at 730-770 S. Wolf Road in Wheeling as part of its acquisition of DCT Industrial.
Now that the surge in spec development is on pause in the North Suburbs, the Colliers report forecasts continued demand, positive absorption and a declining vacancy rate over the coming quarters.
For the first time since 2000, the Lake County vacancy rate decreased by 53 basis points during the third quarter of 2018 to 6.54 percent—a significant drop from the 8.40 percent rate of Q3 2017. Net absorption improved as well, totaling 384,302 square feet between July and September and just over 1 million square feet through the first three quarters of 2018.
Large blocks of space have become increasingly rare in Lake County. For users looking for at least 200,000 square feet, there are currently only eight options, three of which are vacant. Two of the eight spaces are under construction, as developers respond to the demand for larger spaces in the submarket.
Five buildings totaling 1.7 million square feet are now under construction, three of which broke ground during the third quarter of 2018. The largest project at 558,550 square feet is Handi-Foil’s build-to-suit, developed by IDI Logistics in the Antioch Corporate Center. The remainder are spec projects—three by Bridge Development Partners in Waukegan’s Bridge Point North business park and a fourth being developed by CenterPoint Properties in Gurnee.
Medline signed the largest lease of the quarter after expanding by 262,424 square feet to occupy the entire 400,758-square-foot building at 3900 Burwood Drive in Waukegan’s Bridge Point North business park. New leasing activity totaled 618,945 square feet between July and September.
At an average of over 2 million square feet over the past few years and sitting at 1.7 million square feet year-to-date, new leasing velocity in 2018 looks to continue the trend as demand remains elevated. The Colliers report predicts that Lake County’s vacancy rate will temporarily increase once ongoing speculative development delivers.
Elgin I-90 Corridor
Sitting at 4.49 percent at the end of September 2018, the Elgin I-90 vacancy rate is the lowest recorded in the submarket’s history, driven down by new leases and lease expansions over the past five quarters. Much of the new leasing activity recorded over the past year took place in the area’s recently-completed spec developments—a segment that has seen 2.7 million square feet in development during this cycle and 85.1 percent of which is occupied.
Year-to-date net absorption in the Elgin I-90 Corridor is 1.5 million square feet, the greatest annual total since 2015 with another quarter still to be recorded. Large blocks of space are hard to find with only one option for users looking for at least 200,000 square feet in the submarket.
Nine new leases totaling 519,587 square feet were signed during the third quarter of 2018, eight of those within the city of Elgin. E-commerce giant Amazon.com signed a short-term 105,146-square-foot lease, the largest in the submarket, at 2500 Northwest Parkway in Elgin. New to the Chicago market, Endries International leased the entire 96,390-square-foot building at 2770 Alft Court in Elgin.
Through the first three quarter of the 2018, new leases and lease expansion have totaled 1.7 million square feet, the greatest total since 2014. Noting this increase in leasing velocity, Colliers forecasts that, though additional demand is expected in the Elgin I-90 Corridor, few available large blocks of space will result in a more gradual improvement trend.
With Illinois companies moving to Southeast Wisconsin and the mega-sized FoxConn development under construction, developers are responding to demand for new construction. The Southeast Wisconsin vacancy rate increased slightly during the third quarter of 2018, up two basis points over the previous quarter and 28 basis points above the 6.02 percent rate recorded one year ago.
Four construction projects totaling 638,473 square feet are now underway in Southeast Wisconsin; three of these are being built on spec with another four spec projects totaling 1.8 million square feet expected to break ground over the next six months. Two projects that started during Q3 include Wangard Partners’ 196,300-square-foot speculative facility in Pleasant Prairie and a 120,000-square-foot staging and warehousing building on the FoxConn development site—the first building of an eventual 22-million-square-foot development.
Transactions were limited during the third quarter of 2018 as up-and-down activity is typical for this submarket. The largest lease of the quarter involved German healthcare company Fresenium Kabi USA leasing 81,799 square feet in the 375,908-square-foot building recently developed by Ashley Capital at 10601 Enterprise Drive, Sturtevant.
As the Southeast Wisconsin vacancy rate has been on a bit of a rollercoaster ride over the past few years, Colliers predicts that the vacancy rate will increase over the coming quarter due to additional speculative development. But demand is expected to continue to increase as well.