O’Hare Industrial Vacancies Increase to 4.2%

Despite a drop in demand over the past few months, Chicago’s O’Hare industrial market is poised to thrive once again as oversupply issues ease.

The submarket’s industrial vacancy has been gradually climbing since it hit a record-low of 2.6 percent in mid-2022. But the last year and a half has hardly been a slump, as vacancy stands at 4.2 percent, down nearly 80 percent from its 10-year average of 7.4 percent, CoStar reported.

In the initial years of the pandemic, demand for industrial space skyrocketed amid an increase of e-commerce. Developers capitalized on this market shift, but perhaps they were a little overzealous, culminating in rising vacancies since the mid-2022 peak. Now, industrial projects in O’Hare are on pause, said George Cutro, director of industrial research for JLL.

From the end of 2022 through 2023, approximately 600,000 square feet of space was lost to sublet move-outs. Furthermore, the sublet availability rate year-to-date is two-and-a-half times greater than the pre-pandemic average.

Leasing activity has also cooled considerably in O’Hare, falling by 30 percent in 2023, compared to the submarket’s previous three-year average. Current leasing volumes are on pace to be among the lowest ever recorded, with tenant hesitancy attributed to uncertainty surrounding future demand and rising interest rates, the outlet reported.

However, there are signs of a resilient market. Over the past 12 months, completed industrial space was mostly pre-leased before delivery, maintaining a 100 percent occupancy rate. In addition, construction starts and square feet under construction have decreased, mitigating potential oversupply issues.

Analysts anticipate that current pain points will be resolved by year-end, driven by inherent demand and limited supply side pressures.

“The O’Hare industrial market is always in demand,” Cutro told the outlet. “The tight infill location coupled with its great air and freight connectivity attracts a diverse base of industries, from data services and manufacturers requiring specialized space, to distributors, retailers and food manufactures seeking logistics and cold storage uses.”

—Quinn Donoghue