It’s old news this far into the pandemic: the economic impacts of COVID-19 have passed over the industrial real estate sector and have in fact bolstered activity within the asset class. Despite this, lease ups in some Chicago spec projects are lagging those in other markets.
Between 2013 and 2018, developers brought nearly 55 million square feet of speculative product to market in the Chicago metro, 91 percent of which has been leased. Of the more than 25 million square feet delivered since 2019, however, only 44 percent of this new spec space has landed a tenant.
According to new data from Colliers International | Chicago, the average time to lease up new spec properties in Chicagoland is tailing the rates in other markets over this period. However, even if Chicago is falling behind compared to some other parts of the country, on whole the industrial sector here is still performing admirably in the face of a global pandemic and resultant economic downturn.
For example, there were 18 spec projects—totaling 4.2 million square feet—delivered to the Chicago market in the third quarter of 2020. Despite the addition of this new product and a relatively sluggish lease-up rate, Q3 2020 was the 16th consecutive quarter in which the vacancy rate among Chicago industrial properties decreased. The 24 percent vacancy rate is the metro’s lowest point since 2013—a period that brought over 80 million square feet of spec space to market.
The largest completion this quarter was a 590,525-square-foot build-to-suit that Venture One Real Estate developed for German company Fresenius Kabi in Kenosha, Wisconsin. One of the largest spec deliveries this quarter was 775 Veterans Parkway, Building 1 in Bolingbrook. The largest building in Crow Holdings’ Veterans Point development, the cross-docked warehouse features heavy-duty concrete paving as well as abundant truck loading and trailer parking.
Colliers tracked 26 leases during the third quarter that were signed for spec properties delivered at some point in the past seven years. Totaling 3.9 million square feet, this volume was a 50 percent jump over the 2.6 million square feet that was recorded in the previous quarter.
By far the largest new lease this quarter was General Motors’ full-building deal at 1023 E. Laraway Road in Joliet, Illinois. Developed by Core5 Industrial Partners, this 1,026,000-square-foot spec warehouse was completed in 2017.
A steadily declining vacancy rate among newer spec projects is certainly a positive metric. However, Colliers research shows that the majority of spec product delivered to the Chicago since the beginning of 2019 remains vacant. Spec building delivered between 2013 and 2016 have a 96 percent or better occupancy rate. Spec buildings delivered in 2018, 2019 and 2020 are 72 percent, 58 percent and 25 percent vacant. Spec building now under construction are 22 percent pre-leased.
There is variance, of course, between the area’s submarkets. The two major spec submarkets, the I-55 and I-80 corridors, have 73 percent and 87 percent occupancy among spec developments that came to market since 2013. These submarkets account for over 35 million square feet, or nearly half, of the metro’s spec development.
In the I-290 North submarket, 90 percent of the current cycle’s spec product has been leased, on par with the 89 percent occupancy in the Chicago South submarket. The I-290 South submarket is currently 100 percent leased, though with a volume of product only a fraction of what is available in I-80 and I-55.
