Stability, Scarcity in Chicago-Area Industrial Market

Recessionary storm warnings don’t seem to be affecting the industrial market around the Windy City.

Rather than by the talk of interest rate hikes and economic downturn that dominate the headlines and have impacted the national industrial market, a drop in demand in the Chicago-area industrial market last quarter was instead driven by lack of supply as vacancy hit a record low, according to a third-quarter report from Colliers.

“Leasing for the last six months has been as strong as ever,” Midwest Industrial Funds’ Justin Fierz said in an interview with The Real Deal, citing limited supply that is “getting gobbled up pretty quickly.”

The Chicago industrial market saw 131 new leases and lease expansions totaling 11 million square feet from July to September, which was the lowest quarterly total since Q3 of 2020 but still impressive historically, according to Colliers. Several recent deals, including real estate firms investing nearly $90 million in well-located, Class A warehouse properties in recent weeks, also demonstrate the market’s resilience.

Signing for spec

Oak Brook-based developer and landlord Midwest Industrial has inked 600,000 square feet of leases at its spec properties in the last six months, Fierz said. The latest are Vanguard Logistics taking 2870,000 square feet of the 400,100-square-foot DuPage Business Center at 537 Discovery Drive in West Chicago and Batavia Container’s lease for 125,200 square feet in Batavia Business Park at 1459 Louis Bork Drive in Batavia, the firm announced this month.

Earlier this year, Midwest Industrial secured two leases totaling 200,000 square feet at its 190,000 square foot spec development at 101 Dollar Tree Lane in Joliet, Fierz said.

Infill for the win

Meanwhile, California-based Pacifica Real Estate made its entry into the Chicago market with the purchase of an 80,000-square-foot, last-mile warehouse and distribution facility at 1900 Maywood Drive in Maywood for $18 million, according to Cook County public records.

Colliers’ Jeff Devine, who represented seller DSI Development in the deal along with Steve Disse, said the facility’s quality and location in a highly accessible infill location attracted investors. The building was completed in August.

Pacifica’s tenant at the 800,000-square-foot distribution center is grocery giant Kroger, which will use the site to expand its home delivery service in the Chicago area.

Tight spaces

Texas-based Sarofim paid more than $55 million to add two warehouses located at 2700 and 2750-2756 Alft Lane in Elgin to its portfolio, CoStar reported. Blackstone’s Link Logistics was the seller. The properties total about 550,000 square feet of rentable space, according to online listings.

The submarket that includes Elgin and the Interstate 90 corridor exemplifies the Chicago area’s low supply of industrial space — tenants seeking 100,000 square feet or more have just one vacant option, according to Colliers.

South Side swap

Inside city limits, Chicago-based distributor Key Food Services sold an industrial property at 4032 South Morgan Street to Oak Brook’s TradeLane Properties for $13.5 million. Cook County public records show that the seller was an LLC managed by Key Food Services CEO Henry Gee.

The submarket covering the city’s South Side saw the greatest decrease in vacancy in the metro area — a drop of 77 basis points to 9.36 percent, per Colliers.

That figure is a function of a lack of modern buildings in the city proper, according to the report, with just one modern building bigger than 100,000 square feet.

Overall, Midwest Industrial’s Fierz said the Chicago area is in the tightest industrial market he’s seen in his nearly three decades in the business. What remains to be seen is if developers can continue to set new records to fill demand.