Demand for industrial space in the Chicago market might be down from the historic highs reached in 2021 and 2022, but that doesn’t mean that this sector is due for a sluggish 2024. The latest research from NAI Hiffman bears this out.
NAI Hiffman, in its fourth quarter 2023 Chicago industrial report, said that the city’s industrial outlook remains bright even as economic pressures and higher construction costs pose challenges.
According to the report, the Chicago-area industrial market saw 15.4 million square feet of positive net absorption in 2023, including 1.8 million square feet in the fourth quarter. Despite this, the market’s industrial vacancy rate rose to 5.2% as of the end of the year, thanks to a record amount of new supply hitting the market during 2023. That vacancy rate is up from 3.9% one year earlier.
Leasing activity remained strong last year. NAI Hiffman reported that the Chicago market registered 9.9 million square feet of new industrial leasing activity during the fourth quarter of 2023, bringing the annual total to 45.8 million square feet.
That’s a solid number. It pales, though, in comparison to 2021, when the Chicago industrial market recorded 81.8 million square feet of leasing activity. Since that busy year, leasing velocity has slowed thanks to economic pressures, higher interest rates and slowing demand.
The Interstate-80/Joliet Corridor submarket continues to outpace all industrial submarkets with 7.6 million square feet of new leasing activity in 2023. Some notable leases in the fourth quarter include GE taking 1.2 million square feet at Interstate-80 and Brisbin Road in Morris, Illinois.
The Interstate-55 Corridor recorded 6.3 million square feet of annual new leasing activity in 2023, second among Chicago-area submarkets. This included Geodis Logistics’ 348,000 square feet at Prologis’ new distribution center in Romeoville during the fourth quarter.
What does NAI Hiffman predict for the Chicago industrial market in 2024? New construction slowed significantly in the second half of last year. That should tighten availability in the second half of 2024 and possibly cause vacancy rates to fall again.
The Chicago market maintains an active development pipeline, with 16.5 million square feet of new industrial space currently under construction. Last year, developers brought 38.9 million square feet of new industrial product to the Chicago market, an all-time high. The fourth quarter saw six build-to-suit buildings totaling 1.8 million square feet come to market representing a significant share of positive net absorption.
