Chicago’s industrial market finished 2017 with an impressive fourth quarter as several transactions during the final weeks of the year pushed the net absorption for the year to 18.9 million square feet. Although 15 vacant speculative development projects totaling 3.8 million square feet were delivered during the quarter, the vacancy rate improved for the first time in three quarters, decreasing by 5 basis points to 6.8 percent.
A total of 88 new construction projects were completed in 2017 totaling 24.8 million square feet, a new record for the market. Speculative development accounted for 13.4 million square feet, or 54 percent, of these deliveries.
The vacancy rate decreased by 5 basis points during the fourth quarter of 2017 to 6.8 percent, the first improvement in three quarters. Despite the improvement, the current rate remains 10 basis points above the 6.7 percent rate recorded one year ago.
Net absorption totaled 5.4 million square feet during the fourth quarter, bringing the tally for 2017 to 18.9 million square feet.
Developers delivered 88 projects totaling 24.8 million square feet during 2017, a new record surpassing the 22.3 million square feet delivered in 2016. Construction starts dropped off dramatically, totaling 13.1 million square feet in 2017 compared to 28.8 million square feet in 2016.
At the end of 2017, 36 buildings totaling 8.9 million square feet were under construction, the smallest amount of space under construction since the end of 2013.
New leasing activity, which includes new leases and lease expansions, totaled 27.1 million square feet among 446 leases during 2017. Average new lease size decreased in 2017; the largest new lease of the year was smaller than the eight largest leases signed in 2016.
The largest new lease of the year involved Kenco Logistics Services, LLC leasing 599,317 square feet in Monee at the end of the fourth quarter. The largest user sale of the year involved Supervalu purchasing Central Grocers’ 994,490-square-foot former distribution warehouse facility in Joliet.
Fewer construction starts over the past few quarters will result in less deliveries during 2018, though a new wave of development may begin during the warm season. The vacancy rate is expected to stabilize during 2018 as new supply will likely closely match demand for space. Positive net absorption will continue through 2018, though likely below 2016 and 2017 levels.
Infill development will continue to be in high demand due the growth of e-commerce and the need for these companies to be in close proximity to their end customers through last-mile delivery service.
Craig Hurvitz is vice president of market research at Colliers International | Chicago and leads the Industrial Advisory Group’s market research initiative. Craig is responsible for managing and maintaining the industrial properties database, which includes property sales and leases, tenant information and comparable transactions. He has a deep understanding of the Chicago-area industrial real estate market and provides in-depth analyses, reports and market trends that are referenced by a diverse group of clients including landlords, appraisers and developers.