Construction completions more than doubled during 2013

CHICAGO—The Chicago-area industrial market had a solid year, as strong tenant and investor demand drove down the vacancy rate 81 bps during 2013, according to a recent report by Colliers International. Furthermore, although total leasing activity was relatively flat compared to 2012, demand from big-box users pushed up the amount of net absorption and builders more than doubled their output.

“The Chicago area industrial vacancy rate fell to 8.70 percent at year-end 2013 — a significant decline from the 9.51 percent vacancy rate reported one year ago,” the researchers find. It was the second consecutive quarter that vacancy was less than 9.0%.

The Central DuPage, I-39 Corridor, Northwest Suburbs and Chicago South submarkets did especially well, with all seeing declines in vacancy rates of more than 200 bps since 2012. The Elgin I-90 Corridor did see an increase of 300 bps, but Colliers attributes this to the addition of several large buildings to the market.

“Chicago’s year-end vacant industrial supply declined an astonishing 10.2 million-square-feet from the fourth quarter 2012 mark to 114.5 million-square-feet at year-end 2013,” the researchers note. And about 52.1 million-square-feet of industrial space returned to the market in 2013, up from 51.2 million-square-feet in 2012, and partly driven by developers completing 3.7 million-square-feet of speculative distribution space.

Although total industrial leasing activity in 2013 was 35.7 million-square-feet, nearly the same as 2012, the Central DuPage submarket saw a huge boost, hitting about 4 million-square-feet, up 1.2 million-square-feet from the 2012 total. The I-290 North market also had a big year, with leasing activity 908,300-square-feet higher than in 2012. Tenant demand was especially strong for spaces with more than 350,000-square-feet. Fourteen transactions of this size occurred in 2013, for a total of 6.7 million-square feet. In 2012, only seven transactions of this size occurred, for a total of about 5 million-square-feet.

“Year-end 2013 sale volume totaled a strong 17.8 million-square-feet,” the researchers note, and although that loosely matched the total for 2012, it was still far ahead of the five-year average of 14.7 million-square-feet.

But what really set 2013 apart from the preceding years was the level of construction activity. “Two 1 million-square-foot facilities were delivered to the market in 2013, bringing total construction completions to 8.8 million-square-feet,” the Colliers report notes. “This more than doubled the 4.2 million-square-feet registered in 2012.” And the I-80/Joliet Corridor was the big winner, accounting for 4.3 million-square-feet, including a 1.6 million-square-foot property at CIC Joliet Business Park and Clarius Partners’ 1.0 million-square-foot speculative bulk warehouse distribution facility at Clarius Park Joliet. However, “several submarkets witnessed no new construction in 2013 including Chicago North, Chicago South, DeKalb County, I-290 North, I-290 South, McHenry County, North Suburbs and South Suburbs.”

Colliers adds that “speculative development will continue but not to the level seen in 2013” and “rent growth is expected in 2014, especially for well-located modern functional product in the 10,000- to 30,000-square-foot and 100,000- to 200,000-square-foot size ranges.”