CHICAGO—The Chicago region's industrial market has now seen 20 consecutive quarters of positive net absorption, according to a new report from Newmark Grubb Knight Frank. And even though its vacancy rate remained steady at 8.3%, the firm attributes this to the delivery of several large speculative projects that countered the robust leasing activity.
“As these modern, state-of-the-art spaces are leased by tenants expanding within the market, the vacancy rate is expected to improve further throughout 2015,” the firm says.
In the first quarter, the market absorbed almost 4.3 million square feet, a slight decline from the fourth quarter of 2014 but an increase over the preceding three. Developers completed seven spec projects totaling more than 2.2 million square feet, and with six still vacant, they added about 1.5 million square feet of vacant space to the market.
Another sign of strength is that rental rates have continued to climb. Average rates hit $4.78 per square foot, a 3% increase over the past year. And even though warehouse rates were slightly lower, NGKF attributes this to all of the new spec space hitting the market, and points out that the current rate of $4.23 is 4.7% over the past year. “As long as vacancy rates remain low and speculative development does not outpace demand, rental rates are expected to continue to increase over the coming quarter,” according to NGKF.
And it's the warehouse and distribution sector that is driving the market, accounting for 87% of the space absorbed in the quarter, the firm found. Developers appear to believe that this robust demand will continue for some time. Roughly three-quarters of both the industrial construction projects completed in the first quarter and the ones ongoing are warehouse and distribution buildings. “The increase in e-commerce is playing a significant role in this trend, as demonstrated by the completion of Amazon.com's 1 million square-foot building in Kenosha during the first quarter.”
Although developers only kicked off two new projects in the quarter, they have a total of 32 projects with 10.1 million square feet underway, and of those, 46% are on a speculative basis, 43% are build-to-suit and 11% are additions to existing buildings. NGKF expects that developers will break ground on another 27 projects in 2015. “This will bring the tally for the year to 14 million square feet, the most activity since 2008.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
