The demand is still there for modern big box industrial properties. However, completions last quarter have added huge amounts of space to the Chicago market, driving vacancy rates up.
Tracking 200,000-square-feet and larger industrial buildings in the Chicago metro, Colliers International data shows that the vacancy rate for big box structure increased by nine basis points to 8.62 percent between April and June. Despite these deliveries, net absorption was positive during the second quarter.
The added vacancy is mostly due to the completion of seven speculative big box construction projects totaling 3.4 million square feet. The buildings, which were delivered 78 percent vacant, added 2.6 million square feet of new vacant space to the market.
There are currently twenty-seven big box projects totaling 13.8 million square feet under construction. Of these, 17 are being built on a spec, totaling 7.2 million square feet. Location Finders International Real Estate is developing the largest spec project now under construction, an 879,040-square-foot building in Monee, Illinois’ Bailly Ridge Corporate Center.
The largest active development project is a build-to-suit facility, however: the 1.5-million-square-foot Plainfield, Illinois warehouse that Seefried Industrial Properties is developing for beverage distributor Diageo North America.
Though the big box vacancy rate elevated during Q2, it remains below the 9.04 percent rate recorded one year ago. For buildings between 500,000 and 749,999 square feet, the vacancy rate increased to 8.11 percent. It was also up for buildings greater than 750,000 square feet—8.17 percent.
For buildings between 200,000 and 499,999 square feet, however, the vacancy rate decreased by 74 basis points to 9.08 percent. In fact, more than 60 percent of the net absorption recorded during the second quarter of 2019 was in this size segment.
Even with the massive deliveries to market, 3.1 million square feet of big box net absorption between April and June brought the tally for the first half of 2019 to 8.9 million square feet. This total outpaces the 7 million square feet of net absorption recorded during the first half of 2018 and the 8.4 million square feet of net absorption recorded during the first half of 2017.
With 958,886 square feet, the I-55 Corridor recorded the greatest second quarter net absorption. This included the signing of seven new leases and lease expansions in big box buildings totaling 1.1 million square feet. Through the first half of 2019, net absorption among big box buildings in the I-55 Corridor totaled 1.7 million square feet, or 25 percent of the market net absorption total of 6.9 million square feet.
There were 23 new big box leases and lease expansions totaling 4 million square feet, according to Colliers International, during the second quarter of 2019. Wholesale Interiors was involved with the largest new lease signed during the quarter, as the furniture supplier subleased the 549,588-square-foot building at 2805 Duke Parkway in Aurora, Illinois from Follett Corporation.
In terms of sale transactions, Prologis’ acquisition of a portfolio of three big box buildings in Bolingbrook, Illinois was the largest. All three buildings, totaling 866,808 square feet, were fully-leased at the time of sale in May. Brennan Investment Group bought the 679,600-square-foot 2101 Dralle Road in University Park, Illinois as part of a sale-leaseback with a long-term lease.