Chicago industrial industrial rents hit record high in Q2: report

Newmark Knight Frank said vacancy rates held steady despite a surge in spec deliveries

Spec building under construction (Credit: Marina Crossings)
Spec building under construction (Credit: Marina Crossings)

The Chicago industrial market remained hot in the second quarter as asking rents hit a record high of $5.58 per square foot.

Vacancy rates essentially remained even, inching up from 8 percent to 8.1 percent, despite the delivery of more than 2 million square feet of speculative space, according to Newmark Knight Frank’s second quarter industrial market report.

Asking rents were highest on the North Side of the city, where they averaged $8.15 per square foot. Not far behind was southern DuPage County, where they averaged $7.86.

Asking rents averaged $6.62 in the O’Hare submarket, and $5.06 on the South Side of the city, where a 633,000-square-foot spec building is projected to come online this year.

The second quarter produced strong results on the sales side as well, with more than $1.6 billion in investment sales, up nearly 28 percent year over year. The report singled out Blackstone Group’s acquisition of some 4 million square feet of industrial space in the Chicago area as part of a $1.8 billion industrial portfolio buy from Cabot Industries.

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“Moving forward, investors will remain focused on larger warehouses and last-mile distribution centers,” the report said, adding Chicago industrial investment sales could have another record-breaking year.

The good news, though, was tempered by the reminder that 10.5 million square feet is expected to deliver by the end of this year, much of it speculative, which could lead vacancy rates to rise.

Count Equity International founder and chairman Sam Zell among those skeptical about demand for all that industrial space, despite surging e-commerce sales.

“My guess is that it’s getting too exciting and we’re building too much industrial space,” Zell told Bloomberg in an interview in April. “I think we got a lot of people owning industrial space today and I’m not sure there are enough tenants.”