Speculative development still dominating Chicago industrial market
The speculative development boom is still surging in Chicago's industrial market, which had 19.3 million square feet of new industrial space under construction in February of 2019, according to Avison Young research.
The 63 percent increase in construction activity from February 2018 shows that developers remain bullish on demand for modern space across the area.
“Industrial businesses, particularly those in the logistics and food service areas, continue to focus on the Chicago area market,” says Chris Lydon, a principal in Avison Young's Chicago office. “Many submarkets that are closer to the city have little to no space available for new buildings, so we're continuing to see speculative development moving to outlying submarkets such as southern Wisconsin.”
Throughout the Chicago industrial market, there were 10 buildings delivered in the first two months of 2019, totaling 1,875,538 square feet. Three of those buildings were in the O'Hare submarket and totaled 717,191 square feet. The new construction provides significantly more options for prospective tenants.
The O'Hare market has seven industrial buildings under construction totaling 905,665 square feet. One of those buildings is a build-to-suit, while the rest are being built on a speculative basis.
DuPage County and the east DuPage submarket have also seen strong demand. The county had an unemployment rate of 2.9 percent at the end of January 2019, well below the 4.0 percent average unemployment rate for the Chicago area.
The county's business friendly environment and solid economic fundamentals have led to a low 3.4 percent vacancy rate in the east DuPage industrial submarket.
There was just one building, totaling 265,550 square feet, under construction as of February 2019.
This industrial activity follows a robust 2018 when 181 leases were signed for a total of 5 million square feet within the O'Hare submarket. The average deal size was 28,268 square feet,
Southern Wisconsin led all submarkets in new construction with 4.9 million square feet built in Q4 2018, a 50 percent increase from the previous quarter.
The largest build-to-suit developments of the fourth quarter of 2018 were a 558,500 square foot warehouse in Antioch in the Lake County submarket, developed by IDI Logistics for Hand-Foil, and a 253,000 square foot property built by Becknell Industrial for Rexnord Corporation in Downers Grove in the I-88 Corridor.
The I-90 West/Elgin Corridor saw steady industrial activity during fourth quarter of 2018, posting 184,752 square feet of net absorption, resulting in 4.4 percent vacancy.
Leasing activity was relatively high in the corridor at 494,046 square feet. At the end of 2018, there was just 118,457 square feet under construction.