As the Chicago industrial market heads into 2025, developers are navigating a landscape of tempered construction activity, rising demand for strategic locations and a growing emphasis on sustainability. They’re refining their focus on projects that align with market demand and provide long-term value.
“We’re very content to see industrial construction has slowed because it’s occurring at a time when the market is still very healthy in the greater Chicago market,” Neal Driscoll, Partner at Dermody said, emphasizing that Dermody would build more if more land were entitled and ready.
This moderation in construction is consistent with broader trends. According to JLL’s Q3 2024 Chicago Industrial Market report, leasing demand dropped significantly, with just 6 million square feet leased compared to 10.2 million square feet in Q2. However, deliveries surged in Q3, totaling 5.3 million square feet—a marked increase from earlier quarters—reflecting a mix of built-to-suit and owner-built projects.
Adam Moore, Senior Regional Director at First Industrial, noted that monitoring submarkets for supply and demand remains critical as some areas approach potential shortages of available space. Meanwhile, Michael Brazeal, Manager of Development Transactions for CenterPoint Properties’ Central Region, emphasized the importance of aligning speculative projects with long-term tenant demand.
Strategically located sites continue to drive development decisions as tenants seek proximity to key transportation hubs and urban centers. Driscoll highlighted Dermody’s focus on sites offering strategic geographic advantages, avoiding commodity real estate that competes solely on price.
“We are seeking irreplaceable infill locations to accommodate current and new tenants within our portfolio who are looking to significantly increase their supply chain efficiency,” Brazeal said, noting that many projects focus on last-mile logistics and bulk distribution.
This trend aligns with JLL’s data, which shows that infill markets continue to push up asking rents. The average asking rent increased to $7.57 per square foot in Q3, with the Chicago North submarket posting the highest rents at $14.09 per square foot. Rachel Agba-Novak, Vice President of Transactions and Development at Hillwood, added that projects with specific transportational advantages such as proximity to airports or rail access are more likely to justify speculative development.
Sustainability initiatives are reshaping industrial development as well, with tenants prioritizing energy-efficient and eco-friendly facilities. For First Industrial, environmentally conscious practices are longstanding priorities.
“We have deployed energy-efficient lighting across our portfolio and committed to building all of our new developments to LEED Silver, or better,” Moore said.
At CenterPoint, Brazeal described how the company is integrating renewable energy options and sustainable construction materials into its developments. Dermody is similarly modernizing design elements to help tenants meet their sustainability goals, with Driscoll noting that LEED-certified developments remain a priority. According to JLL, eco-friendly design not only meets tenant demands but also positions developments for future market resilience.
“That said, those companies which are particularly price conscious still seem to view LEED certification as a ‘nice to have’ not a ‘must have’ in their evaluation of industrial space,” Agba-Novak said, adding that Hillwood is also designing projects to LEED standards. “I do not anticipate that changing dramatically until additional legislation is put in place, but we cannot deny it is the future of industrial development and are planning our new developments accordingly.”
While major developments may slow in 2025 due to extended entitlement timelines, developers expect steady demand for smaller projects and build-to-suit facilities. Driscoll predicted a quiet year for large-scale projects but highlighted opportunities for quicker-to-market developments.
Moore pointed to First Park 94, First Industrial’s master-planned park in Southeast Wisconsin, as an example of a site ready to accommodate future demand. The park, which serves the greater Chicago market, includes 137 acres of land available for 2.6 million square feet of additional development.
“We anticipate that we will see increased demand for build-to-suits, which we can easily accommodate,” Moore said.
Meanwhile, CenterPoint plans to deliver a new bulk logistics facility in the Chicago area, which Brazeal emphasized will be essential for meeting tenant demand. The JLL report underscores this need, noting that speculative development is expected to remain limited, with just 10.7 million square feet slated for delivery by the end of 2024. This restrained pipeline is likely to keep Chicago’s vacancy rate steady at 4.8%, significantly below the historical average of 7%.
“We are very optimistic about the trajectory of the market,” Driscoll summarized.
