After a prosperous run, the inevitable is approaching as the market has started to slowdown.
The signs? Well, Savills’ Q$ 2022 Industrial Report found that (1) while vacancy remains well below the long-term average, it has risen for two consecutive quarters, closing the year at 4.6%, and (2) demand seems to be lessening, though asking-rate growth has not yet abated, increasing 3.7% over the quarter to $5.60 per square foot. Rates have risen slightly over the past two years due to strong occupier demand and upward pressure from inflation.
Savills said, too, that another factor with potential to alter market fundamentals is the high volume of construction. After setting the record for ongoing construction in Q3 2022, Chicago beat its own record. Industrial property construction exceeded 38 million square feet, increasing almost 16% in Q4. Impressive, but many wonder whether current levels of construction are sustainable and if market dynamics will be altered by overbuilding.
Still, Q4 remained just as active in terms of user activity. Tenneco sold and leased back its 1,000,000-square-foot facility at 7450 McCormick Boulevard within North Cook. Uline renewed their lease of 502,000 square feet at 11290 80th Avenue in Kenosha.
Regarding e-commerce, it’s not farfetched to say what’s happening within this sector might be a warning sign, according to Savills. Following a recent, yet steady decline in sales growth, Amazon abandoned several existing and planned facilities across North America, and Walmart and Nordstrom, for example, have announced significant layoffs.
Chicago has seen an upward trend of direct space, but a shift in sublet supply has yet to occur, hovering at 4.8 million square feet—below the five-year average of 5.7 million square feet.
All this said, Chicago metrics remain better than markets along the East and West Coasts, and the sector itself remains one of the safest during this time, compared to office and retail where demand appears to have been more fundamentally altered by the effects of the pandemic.