Chicagoland infill industrial development expected to surge
Chicago-area industrial construction is off to a quiet start for 2018, but shovels will be busy in the second half of 2018.
Colliers International | Chicago’s Industrial Construction Review indicates 30 projects totaling 7.2 million square feet are under construction — a dramatic 61% drop from the 18.3 million square feet under construction at this time one year ago. The last time so little space was under construction was during the second quarter of 2013, when four million square feet was underway.
New deliveries also remained slow during Q1 2018, as we saw 3.7 million square feet — or 14 facilities — delivered. This marks the lowest amount of new supply since 3.3 million square feet reported in Q3 2016. The largest completion during Q1 2018 was Ryan Companies’ 1.25-million-square-foot, highly-specialized, build-to-suit facility for IKEA in Joliet.
While the year began quiet, we anticipate a strong surge in infill development — or the redevelopment of already largely-developed sites — in the next six months. About 50 projects are expected to begin construction during the second and third quarters of 2018, at least 20 of which are expected to be infill projects. Approximately 13 million square feet of new development is expected to begin by September 2018.
The shift to infill development has also led to a shift in project size. We’ve seen the average project size decrease about 23% for under construction projects and planned buildings expected to begin construction during the next six months. Infill construction projects tend to be smaller in size due to land constraints and the demand for big-box spaces in infill markets being limited. Previously, from 2014 to 2017, the average project size grew each year topping out at nearly 300,000 square feet.
What is leading to a surge in infill development? There are three key drivers:
1. Density of population
The primary drivers of infill development are last-mile delivery and e-commerce tenants. We’ll continue to experience increased demand from e-commerce companies and last-mile delivery requirements, requiring the need for these companies to be close to densely populated areas. Amazon, for instance, has absorbed more than four million square feet in the Chicago area since 2016. 20% of all new leasing activity is e-commerce related, up from 5% five years ago, and this trend is expected to continue to drive demand in infill submarkets.
2. Air freight and airport access
Chicago’s O’Hare submarket — including communities such as Elk Grove Village, Franklin Park and Bensenville — is well positioned to major thoroughfares and offers immediate access to air freight and O’Hare International Airport.
3. High industrial concentration
The Chicago O’Hare submarket holds the largest concentration of industrial development in the Chicago area. Many of the buildings are functionally obsolete — due to factors such as ceiling height, truck loading and parking — also driving increased development. As companies become more automated, there is a need for more state-of-the-art facilities and operations. Developers are opting to build up and maximize cubic feet instead of build out.
The ‘out with the old, in with the new’ trend is expected to continue in Chicago’s industrial market with the proliferation of e-commerce and last-mile tenants.
David Bercu, principal and leader of the Chicago-area industrial services group, represents major developers, institutions and corporations in the acquisition, leasing, construction and disposition of industrial real estate.