The Chicago metro industrial market remained strong last quarter. The 8.6 million square feet of new leasing activity during Q2 is the highest quarterly total since 2015 and the plummeting vacancy rate, which was down by an 23 basis points to 6.4 percent, is the lowest rate recorded since 2001.
In the I-55 Corridor, numbers were improved as well, if not quite so dramatically. According to Colliers International research, vacancy was down though transaction velocity didn’t match year-over-year totals. The submarket should continue to bounce back from last year’s increased vacancy, brought on by significant spec development.
Vacancy
For the past six months, vacancy within the I-55 corridor has improved, dropping to 11.2 percent at the end of June. While this is an improvement over the previous two quarters (11.8 percent in Q1, 12.9 percent vacancy at the end of 2017), the I-55 Corridor lags all other Chicago submarkets but one, McHenry County.
The five largest available spaces for lease, according to Colliers, are all in Romeoville. Totaling 3.2 million square feet, these availabilities account for 3.5 percent of the I-55 Corridor’s total inventory of 92.6 million square feet.
The largest available space is 1101 W. Airport Road. Developed by Panattoni and completed last year, the 787,499-square-foot warehouse remains unleased. Denver-based DCT Industrial bought the facility in February for $47.3 million, or about $60 per square foot.
Construction
According to the Colliers report, the improvement over the past six months is the result of limited new speculative deliveries and steady demand. Between April and June, no development projects were delivered in the I-55 Corridor, the first period with no construction completions since the first quarter of 2017.
This trend is changing, however, as the I-55 Corridor leads all submarkets in square footage under construction with 2.2 million square feet, accounting for a quarter of the 8.6 million square feet under construction metro-wide. Six projects—all of which are being built on a speculative basis—account for this new activity.
The largest project is a two-building development totaling 1.3 million square feet being developed by CT Realty Investors on Bluff Road in Romeoville. CT acquired the 112-acre parcel last December and broke ground in March.
The $125 million development, Interchange 55 Logistics Park, is slated for year-end completion. The project will consist of two state-of-the-art cross dock distribution facilities, each with 32-foot minimum clear height, 560 feet of building depth and 185-foot deep truck courts.
“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. “We are investing in the highest quality modern logistics facilities in Tier One markets across America to meet the dynamic and growing demand for goods distribution nationwide.”
Building A contains approximately 657,000 square feet, 60 dock-high doors, 157 trailer parking spaces and 241 car parking spaces. Building B contains approximately 684,000 square feet, 68 dock-high doors, 175 trailer parking spaces and 465 car parking spaces. The designs allow for further expansion of car parking, trailer parking and dock doors depending on tenant requirements.
Transactions
Net absorption for the second quarter of 2018 totaled 523,708 square feet, bringing the tally for the first half of the year to 1.7 million square feet. Although this figure is below the 2-million-square-foot net absorption total during the first half of 2017 and the 3.1-million-square-foot total during the first half of 2016, demand for space remains positive in the I-55 Corridor.
New leasing activity totaled 1.1 million square feet between April and June, bringing the total volume of new leases and lease expansions through the first half of 2018 to 2.5 million square feet. The largest new lease of the quarter involved logistics and warehousing provider RJW Transport taking on all 405,844 square feet of 1000 Veterans Parkway in Bolingbrook.
There were several investment sales in the second quarter. Prologis was involved in two transactions, acquiring the recently-completed, 152,112-square-foot building at 2141 International Parkway in Woodridge, as well as 7600 S. Grant Street in Burr Ridge, a 64,842-square-foot warehouse constructed in 2000.
Forecast
Following a significant increase in 2017—due to 3.9 million square feet of vacant speculative construction completions—the I-55 vacancy rate is trending back down again. While ongoing speculative development may temper the rate of improvement to the vacancy rate towards the end of the year and in early 2019, demand is expected to remain strong.
