Industrial space in Chicago drawing multiple offers from e-commerce users

New leases jump 16% in first half from year earlier

Tenants are going toe-to-toe for industrial space in Chicago (Getty)
Tenants are going toe-to-toe for industrial space in Chicago (Getty)

Demand for industrial space from e-commerce companies and big-box retailers in Chicago is so hot that tenants are bidding up prices for the right to lease distribution and warehouse space.

“I’ve never seen this before where tenants are making multiple offers for leases,” said Larry Goldwasser, executive director at Cushman & Wakefield, who has been an industrial broker for more than 25 years. “I’m actually seeing tenants get into bidding wars on leases. It’s pretty crazy.”

The growth of e-commerce has driven demand for warehouses across the country and the world. Chicago is especially attractive because of its location in the middle of the U.S. with access to multiple forms of transport.

Amazon, Walmart and Target are among companies that helped fuel a record 26.2 million square feet of new leases in the first half of this year, surpassing new leases inked in the same period a year ago by 16 percent and the first half of 2019 by closer to 60 percent. It exceeds the full-year total for 2017.

Prologis and Logistics Property are among those buying, building and leasing hundreds of thousands of square feet to fill the demand as well, according to Cushman & Wakefield.

Prologis, for example, wrote a $100 million check for a 339,000-square-foot warehouse and office building on Chicago’s Goose Island in March. At $295 per square foot, it’s been the largest commercial investment sale in the city this year and netted a hefty profit for the sellers. A joint venture between the investment arm of Related Cos. and the Greenfield Partners investment firm had purchased the property from Mars, the candy company and tenant, for $73 million in July of 2019.

That’s pushed the vacancy rate in the greater metro area to 4.8 percent — tighter still in some parts such as the north and south sides of the city where access to O’Hare International Airport and Midway Airport is relatively easy. The north side had the lowest vacancy rate at 3.3 percent while the south side’s stood at 3.8 percent. And it doesn’t look like it’s going to slow down anytime soon.

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The trend is more common with hard-to-find spaces of all sizes for warehousing and last-mile distribution, Goldwasser said. In one instance, a pair of users looking for 200,000 square feet in the city went back and forth a few times before a final price was settled. He wouldn’t reveal the site or the tenant.

Overall, the average asking net rents shot up 4.6 percent to $5.61 per square foot on a year-over-year basis, according to Cushman & Wakefield’s mid-year industrial report. That’s cheap compared with the 20 percent jump to $10 a square foot that Goldwasser has seen on some last-mile sites in the city that are few and far between.

“I just had an investor complaining to me about pricing,” Goldwasser said. “But then he said, ‘Show me anything you see because I want to buy it.’”

Smaller industrial parcels are also drawing buyers, said Randy Blankstein, president of Boulder Group, which specializes in single-net tenant properties.

“I’ve seen multiple bidders for almost any property in the last six months,” he said. “The market has gone straight up in prices, too, in the last six to eight months.” That’s prompted some investors to clean up their property pools by unloading lower-quality sites.

“I’m seeing older and older properties go to market as people look at this as an opportunity to upgrade their portfolios and get rid of the oldest or most challenged properties,” Blankstein said.

There’s not much to slow what Blankstein said is now “everybody’s favorite asset class.” There is more than 25 million square feet of industrial space under construction, including several 1 million-square-foot projects.

Speculative space alone, built without a tenant lined up, jumped nearly 37 percent over last year to 16 million square feet. That, according to Cushman & Wakefield, could pressure vacancy rates later this year and into next year though demand from both users and investors is expected to remain robust in coming quarters.

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