Chicago’s booming industrial market is starting to cool, as deliveries hit historic highs in the third quarter.
Pandemic-driven demand and low interest rates led to a proliferation of big-box industrial developments hitting the market at the same time.
The amount of industrial space entering the market in the third quarter — 12.8 million square feet — was the highest since 1999, according to JLL.
As a result, vacancy rates crept up.
“Everyone started their construction and delivered it all at the same time,” said Kate Coxworth, an industrial broker with JLL.
The industrial asset class has outperformed other commercial real estate sectors hammered by the pandemic in the past few years. Demand for shipping and distribution centers grew, while demand for office space plummeted.
That drove a need for big-box industrial properties, defined as 200,000 square feet or larger.
Supply for that subsector is just starting to outpace demand, according to Colliers. Vacancy rates jumped to 7.6 percent in the third quarter, compared to 3.5 percent in the same period of last year.
“We were at such an accelerated pace during and post pandemic that it was really difficult to maintain that level of absorption,” said David Bercu, a Chicago-based industrial broker with Colliers.
Industrial activity is still at historic highs, and will remain strong in the Chicago area, Bercu said. The region has long been considered a distribution hub and is supported by railways, interstates and a large population center.
More companies will start to seek out midsize industrial properties as pandemic-driven distribution needs calm down, Coxworth predicts.
“A lot of these companies are coming back to the center,” she said. “Everyone isn’t buying everything from their Amazon account anymore.”
Heading into the new year, the market at large may start to tighten as construction slows. Interest rates are stymying development but a few projects are set to enter the market and help meet demand.
“I would say the table is pretty well set in terms of speculative buildings available,” Bercu said.
About 31 million square feet of industrial space was under construction in the Chicago area at this time last year. About 18.6 million square feet was under construction in the third quarter of this year.
Some recent leases include a 775,000-square-foot built-to-lease for Kraft Heinz that started construction in Dekalb, and a 250,000-square-foot lease by Round Ground Metals Inc. in Hanover Park.
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