Chicago’s industrial market continues to make record strides, as tenant demand fuels strong leasing and new construction. Leasing velocity in Chicago’s industrial market increased by 36.4 percent during the first quarter of 2018, according to Q1 2018 research from Avison Young’s Chicago office.
There were 7.5 million square feet across a total of 273 leases during the quarter. But construction also saw a rise—by 58.8 percent, in fact, totaling 2.7 million square feet. Most of that was spec space: nine of the quarter’s 14 delivered properties, totaling 2.2 million square feet. There are currently nearly 10 million square feet of industrial space under construction across the Chicago metro, 72 percent of which is speculative.
“The overall appetite for industrial product remains very strong,” said Christopher Lydon, an Avison Young principal in Chicago and member of the firm’s industrial practice group. “Given the amount of new speculative construction coming to the market, developers remain bullish about the market’s ability to absorb new space. User demand is at an all-time high, with users looking to locate in facilities that have newer features and amenities.”
The O’Hare area, where the vacancy rate is 4.5 percent, is drawing many developers who are enticed by the submarket’s increased demand and shortage of space. There was 519,314 square feet of absorption at the end of Q1 as well as 1.84 million square feet of construction underway—an increase of 625 percent year-over-year. A wide range of industrial users are driving this activity, including third party logistics providers and data center users.
Elsewhere in the Chicago metro, the I-80 submarket leads the way for space under construction, with more than 4.5 million square feet being built in Chicago’s southwest suburbs. The corridor already added 8.1 million square feet last year.
For example, 4050 Rock Creek Boulevard is a 291,728-square-foot industrial facility in Joliet, Illinois’ Rock Run Business Park. Built by IDI Logistics, the property features 36-foot clear height, 38 docks, two expandable drive-in doors and parking for 234 vehicles and 88 trailers. Avison Young is actively leasing the warehouse.
The I-55 and O’Hare submarkets come in a distant second and third with 1.9 million square feet and 1.8 million square feet, respectively, under construction in each market.
Vacancy in the Chicago industrial market is down 40 basis points overall to 5.9 percent. Tenants such as Uline, which just signed a lease for its third building in the Kenosha, Wisconsin area, are buoying the Southern Wisconsin submarket to one of the lowest vacancy rates in the area at 3.4 percent. At 11.6 percent, the I-55 corridor has the area’s highest vacancy rate.
The largest transaction during the first quarter came from third party logistics provider Kenco, which sign a lease for 599,317 square feet in Monee, Illinois. Uline’s Southern Wisconsin lease absorbed 417,384 square feet.