Chicago industrial vacancies post first rise in two years

Properties over 200,000 sf draw least leasing since 2020 as tight market starts to unwind

Rendering of 635 W. Lake Street in Elmhurst and Molto Properties' Michael Powers (Molto Properties, Loopnet, Getty)
Rendering of 635 W. Lake Street in Elmhurst and Molto Properties' Michael Powers (Molto Properties, Loopnet, Getty)

Industrial leasing in the Chicago area is slowing as tenants wait for developers to finish projects to relieve historically low supply.

Vacancies in Chicago-area industrial buildings of 200,000 square feet or more rose for the first time in nearly two years in the second quarter, Colliers found, underscoring the impact on demand of developers putting a record amount of projects in the pipeline.

“The supply side is starting to catch up,” said Colliers broker Matthew Stauber. “Instead of having five bidders for every space, now it’s down to two or three.”

Tenants leased 5.1 million square feet of the big industrial buildings, the lowest total since the fourth quarter of 2020 and almost half of the record 9.7 million square feet leased in the fourth quarter of 2021. Developers completed seven speculative big box buildings totaling 3.9 million square feet in the second quarter, and four were delivered vacant, driving the vacancy rate to 2.9 percent from the all-time-low of 2.6 percent in March, Colliers said.

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The slowdown paralleled a downturn in demand for the overall Chicago industrial market, which had its first increase in vacancies in three years in the last quarter, rising 30 basis points to 7.3 percent. A basis point is a hundredth of a percentage point.

While the drop is significant, it’s not enough to put downward pressure on rental rates because supply is still tight and brokers are still fielding plenty of requests for space, Stauber said.

“I would anticipate rents will continue to rise, but not quite at the same rate they have been rising for the past 24 months,” Stauber said. “There is not enough supply to catch up to that demand. The rise in interest rates and resulting pullback of capital for speculative construction, that is going to limit that supply coming online.”

The largest lease recorded last quarter were taken by Uline for 757,000 square feet at a Kenosha, Wisconsin facility developed by North Point Development. Next biggest was Ceva Logistics, which leased 708,000 square feet, and 3 Expeditors, which leased 670,000 square feet, both at Bridge Industrial’s Melrose Park campus.

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