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Developers pounce on hot Chicago industrial market as new deliveries soar
Deliveries hit a nearly 2-year high in the second quarter, and another 12 million square feet is still expected this year
Even with a cold and rainy spring delaying some projects, Chicago-area industrial construction continues to surge, with more new warehouse space delivered in the second quarter than at any time in nearly two years.
Some 18 projects totaling 4.7 million square feet of industrial space came online in the second quarter, according to a new report from Colliers International. That’s the most new space delivered in a single quarter since the end of 2017.
But the number could have been even higher, with unseasonably cold spring pushing back some projects. That means another 7 millions square feet of new warehouse supply could come online in the Chicago area in the third quarter, much of it speculative, part of more than 12 million square feet expected to be delivered by the end of the year.
Worries that the continuing surge in deliveries could lead to oversupply so far have been unfounded, with vacancy rates for newly delivered speculative development falling in each of the last eight quarters. The vacancy rate for speculative projects hit 32 percent last quarter.
Since 2013, 227 speculative industrial projects totaling 61 million square feet have been delivered. More than 68 percent of that space has been leased.
The leasing activity shows “demand for new speculative warehouse space is outpacing new supply and the market is not being overbuilt,” the report said.
Chicago’s industrial market has been booming for some time, thanks to growth in the e-commerce and the burgeoning cold storage sector. The recently legalized recreational marijuana industry will likely be a further boon to the warehouse market, especially to parts of the market that have not seen an explosion in development, experts have said.
Meanwhile, a massive pipeline of warehouse development seeks to fill demand for these growing sectors. About 17 million square feet of development is underway, meaning at least foundation work has begun, according to Colliers. Another 30 million square feet could hit the market in the future, from just one project that Miami-based Elion Partners is planning southwest of the city.