According to the most recent release of Lee & Associates' Industrial Market Report, these are exciting times in the commercial real estate sector, especially when one looks at the industrial market.
Exceptional levels of absorption, low vacancy rates and a near record pace of new development and construction are the key take aways from an in depth look at recent trends in industrial real estate. "Over the past twelve months, a total of over 38 million square feet was leased in the Chicagoland area," according to Chris Huecksteadt, executive vice president at Lee & Associates. "This represents a healthy 12 percent increase over 2015 leasing activity," he added. With robust demand, it is no surprise that the vacancy rate has continued to fall, especially in those locations and among Class A buildings, that are in most demand. Overall, the vacancy rate stands at 6.8 percent, down from the 7.3 percent in the market at the end of 2015.
With inventory levels tightening it is not surprising that developers have been very active. At year end, there was a total of nearly 19 million square feet of new space under construction (compare to the under 13 million square feet that was under construction at the end of 2015). Not surprisingly, many of the most active submarkets are seeing much of the development activity, with the Joliet/I-80 Corridor leading the way with 7½ million square feet under construction. The I-55 and I-57 corridors are also very active with a combined total of 4.1 million square feet currently being built. The Wisconsin market, which has emerged as a strong competitor in the Chicagoland region for distribution and warehouse tenants, currently has 2.2 million square feet under construction.
Trends prevalent in today's market include the increase in demand for warehouse space.
In December of 2016, Amazon executed leases on three properties, two in Aurora totaling nearly 1.4 million square feet and one in Waukegan of 626,000 square feet.
Amazon, though maybe the largest, is not the only player in the warehouse/distribution game. The demand for distribution space of all sizes throughout the Chicagoland market remains strong.
Redevelopment of existing industrial properties is also occurring throughout the Chicagoland area. In addition to the redevelopment of several properties nearer the city of Chicago, the suburbs are also beginning to participate in this trend.
The Alberto-Culver site in Melrose Park is currently being reconfigured and reintroduced into the market as a potential manufacturing and warehouse site. The one-time former headquarters of Alberto-Culver, with brands such as VO-5 hair care products, will offer future tenants a great location in a market where newer space can be difficult to find.
"Many existing structure have become functionally obsolete, so the challenge has been to work with architects, site planners, and construction professionals to re-imagine and reconfigure spaces for today's users," Huecksteadt said.
With rising lease rates, strong user demand, investors showing increased interest and tightening levels of inventory, the importance of quality information cannot be overstated.
"Knowing the competition, what's in the pipeline, and who's currently looking is only a portion of what one needs to know to be successful today," said Huecksteadt.
"We have invested significant amounts of time and resources into developing our knowledge base to provide our team and their clients with the information needed to succeed."
• Chris Huecksteadt is executive vice president of Lee & Associates of Illinois LLC of Rosemont. firstname.lastname@example.org.