Of the speculative industrial space developed in the Chicago market during this cycle, more than 70 percent of it is now leased. And this figure only continues to rise, suggesting that supply is not yet outpacing demand.
Since the development cycle began in 2013, the MSA has welcomed 259 spec projects, according to Colliers International figures, totaling 70 million square feet. A surprisingly large portion of that space—more than 12 percent—was leased just during the second half of 2019.
In the third and fourth quarters of last year, 8.9 million square feet of speculative space saw new leases. That was a notable increase over the 4.9 million square feet of new leasing volume for these properties in the first half of the year.
All of this activity is further suppressing vacancy rates. For speculative buildings completed during the current cycle, vacancy rates fell 54 basis points year-over-year to 29.3 percent. In fact, Chicago-area spec industrial vacancy rates have decreased for 11 quarters running—suggesting the market is far from overbuilt.
Some submarkets have fared better than others. In terms of deliveries, the kings of this cycle have been the I-55 and I-80/Joliet corridors, which together account for 32.6 million square feet—nearly half—of spec development. Despite this massive new construction, the two submarkets are 74 percent and 66 percent leased, respectively.
Other submarkets are smaller, but significantly tighter. In Lake County, 88 percent of the current cycle’s spec product has been leased; the northwest suburbs are 89 percent occupied and Central DuPage is near full capacity, with 95 percent of its spec space now leased up.
On the other hand, Fox Valley spec properties have only been able to lease 30 percent of their space. And while there may be some signs of life in the far south suburbs, there is a lot of ground to gain as a woeful 11 percent of speculative space delivered this cycle has been occupied in that submarket.
Recent leases include Duke Realty’ Airport Logistics Center in Romeoville, Illinois, where a 3PL firm, RJW Logistics, took the entire 543,780-square-foot building in August. Keyence Corporation—a manufacturer of laser measuring instruments and other devices—signed a long-term lease in November for 80,849 square feet in Bridge Development Partners’ Bridge Point Itasca in Itasca, Illinois.
With nearly three full years of plummeting vacancy rates, the appetite for speculative industrial space is apparent. It’s no wonder, then, that 2019 set the new high-water mark for most spec product completed during this cycle.
Despite a steep drop-off in deliveries from 2017 to 2018, Colliers research shows 52 spec development projects delivered throughout the course of 2019, totaling 15.1 million square feet. Not only is that more than any other year during the current cycle, it’s one of the strongest years for spec development in the market’s history. The largest completion of the 4th quarter was the 879,040-square-foot spec facility that LFI Real Estate delivered in Monee, Illinois’ Bailly Ridge Corporate Center.
Looking ahead, 2020 looks to continue the trend as there are currently more than 10 million square feet of spec space now under construction—two-thirds of all construction now underway. This includes the first and largest building in Crow Holdings’ new Veterans Point development in Bolingbrook, Illinois. The 573,758-square-foot, cross-docked warehouse is scheduled for completion in the 2nd quarter of this year.