The hot streak continues. Month after month, the market has experienced record demand — and it’s not predicted to halt any time soon around Chicagoland.
A Q2 report by Colliers found that demand for space matched Q1 2022 and Q4 2021 as measured by net absorption. Net absorption totaled over 12 million square feet during Q2 of 2022, outpacing Q1’s total of 11.7 million square feet. Build-to-suit completions contributed 3.3 million square feet to Q2’s net absorption total.
That said, the still-plunging vacancy rate in Chicago dropped another 33 basis points between April and June to 4.58%, setting another record low. The rate is now below 4% in 10 of the 22 submarkets that Colliers tracks, based on the report, led by the I-55 Corridor at 1.4% and O’Hare at 1.8%.
But the unprecedented numbers, while favorable to many, are somewhat of a double-edged sword. Why? Prospective occupiers are at a loss.
Low vacancy has led to few available options for those looking for space in product of all sizes. As a result, new leasing activity, and lease expansions, dropped 27% from Q1, from 16.5 million to 12.1 million square feet.
It is true that, however limited, more space is being built, despite steep construction costs and inflationary pressures. And in most cases, this means building speculatively.
Speculative construction continues to gain momentum and many additional speculative projects are planned to begin over the next few months. Vacancy in recently completed speculative buildings increased 30 basis points to 7.3% during Q2, the first increase in just under three years.
Yet competition for space among users is still in full swing. And aside from the challenge of acquiring the space, it’s become increasingly more expensive to do so. Colliers found that asking lease rates market-wide have increased 6.5% year-over-year, while rates in infill submarkets where demand far outweighs supply have increased, in some cases, more than 10% year-over-year.
