Corporate give-backs boosted the vacancy rate in the Chicago industrial market during the first quarter of the year.
JLL in its Industrial Insights report said that these give-backs played a role in Chicago’s industrial vacancy rate inching up to 4.6% in the first quarter. This rate was a jump of 30 basis points from the fourth quarter of 2023 and a rise of 170 basis points from the first quarter of 2023.
JLL said that a growing number of corporations returned industrial space that they had leased on a short-term basis during the height of the COVID-19 pandemic. During this time, corporations needed to deliver products as quickly as possible to consumers, which caused many to lease warehouse space on a short-term basis.
Now, though, many of these corporations are returning this space. This new round of give-backs is only boosting the Chicago market’s industrial vacancy rate.
According to JLL, give-backs were most prevalent in the I-88 corrioder, where 1.3 million square feet of industrial space was returned during the year’s first quarter.
Another key finding of JLL’s Chicago report? Chicago saw 3.7 million square feet of industrial space delivered in the first quarter. That was significantly less than the 12.5 million square feet delivered in the fourth quarter of 2023.
Developers are also slated to build just 12.4 million square feet of new industrial space this year, according to JLL. That is half of the market’s five-year average of 24.9 million square feet.
Tenant demand for industrial space, though, did hold steady. JLL reported that tenant demand measured 7.4 million square feet in the first quarter. Demand was strongest for industrial facilities in the 100,000-square-foot to 150,000-square-foot size. A total of 12 leases for industrial facilities of this size were signed during the first quarter in the Chicago market.
Speculative construction is down, too. JLL reported that 3 million square feet of speculative industrial construction was completed in the first quarter. There is just 8.2 million square feet of industrial construction scheduled for completion by the end of 2024.
Industrial asking rents in Chicago have flattened, too, hovering at $7.06 net in the first quarter, a slight dip from the $7.13 net reported in the fourth quarter of 2023. The Chicago North market continues to command the highest pricing at $12.83 a square foot.
A bright spot? JLL did say that the Chicago industrial market is poised for a strong finish to 2024 because of the limited amount of new speculative developments now underway. Coupled with an increase in tenant inquiries, Chicago could see the absorption of a major portion of the market’s remaining big-box speculative products.