Buoyed by the continued growth of e-commerce, Chicago-area industrial developers added 9 million sq. ft. of supply in the third quarter – much of it on a speculative basis – causing a slight uptick in vacancy but underscoring the overall health of the market, according to the newly released “Third Quarter 2019 Market Peek” from NAI Hiffman, a real estate services firm.
The Chicago area’s overall industrial vacancy rate ticked up to 5.63% from the five-year low of 5.43% seen in the second quarter, the result of a robust construction pipeline that brought 7.3 million sq. ft. of speculative warehouse space to market in the third quarter, much of which was vacant at the time of delivery, according to NAI Hiffman data.
Yet with several large lease transactions expected to close by year’s end and year-to-date absorption totaling an impressive 15.4 million square feet – up 37.4% from the first three quarters of 2018 – NAI Hiffman expects the rise in vacancy to be an anomaly rather than the start of a trend.
“While a large amount of speculative space was added to the market all at once in the third quarter, partly because of weather conditions delaying construction, we’re confident the new product will quickly be absorbed,” Amanda Ortiz, director of research for NAI Hiffman, said in a statement. “Users across a variety of industries have demonstrated that they’re willing to pay a premium for Class A product that offers proximity to labor and is capable of accommodating robotics and other emerging technologies that streamline day-to-day operations.”
Other notable stats from the third-quarter report include:=
- Average net rental rates were $5.26 per square foot in the third quarter, essentially unchanged from $5.28 per square foot in the previous quarter.
- Fourteen companies took occupancy of spaces larger than 200,000 sq. ft. during the third quarter, including four tenants moving into recently constructed facilities: Suncast Corp. in West Chicago (782,000 sq. ft.), Kellogg’s in Minooka (706,000 sq. ft.), Thermoflex in Waukegan (228,000 sq. ft.) and Bolke-Miller Co. in Waukegan (400,000 sq. ft.)
- The submarkets with the highest delivery of new industrial space in the third quarter were: I-90/Joliet Corridor (1.95 million sq. ft.), I-55 Corridor (1.69 million sq. ft.), Lake County (1.30 million sq. ft.) and Southeast Wisconsin (883,000 sq. ft.).
- Industrial space under construction during the third quarter totaled 16.7 sq. ft. feet, with the following submarkets experiencing the most construction activity: I-55 Corridor (4.66 million sq. ft.), Southeast Wisconsin (2.54 million sq. ft.), I-88 Corridor (1.54 million sq. ft.) and Chicago South (1.35 million sq. ft.).
- Twenty-three industrial projects totaling 7 million sq. ft. broke ground in the third quarter. Five of them are build-to-suit projects totaling 3 million sq. ft., with an average building size of nearly 600,000 sq. ft.
- New leasing activity totaled 11.45 million sq. ft. The I-80/Joliet Corridor recorded the highest third-quarter total, with 2.75 million sq. ft., followed by the I-55 Corridor (1.92 million sq. ft.), O’Hare (1.01 million sq. ft.), and Southeast Wisconsin (962,269 sq. ft.).