CHICAGO—The Chicago region's industrial market has been having a great few years, with long lines of potential tenants looking for new class A spaces, especially distribution facilities larger than 300,000 square feet. And in 2017 this big box sector will face a challenge, according to Colliers International | Chicago's new third quarter Industrial Big Box Report.

“There is a significant amount of speculative construction that is going to be delivered over the next two quarters,” Matthew Stauber, principal, tells GlobeSt.com. “If you are currently looking for 750,000 square feet in the Chicago area it does not exist, but it will very soon, and that will have a very interesting impact on the market.”

Developers will watch carefully to see how much interest the pending big box projects generate, and how quickly tenants agree to occupy them. A total of eight big box construction projects were started during the third quarter, Colliers found, bringing the total ongoing projects to 21. Developers currently have 13.3 million square feet of big box construction projects underway in the market, of which 11 projects, representing 42.8% of the ongoing construction activity, have been launched on a speculative basis.

Most observers, including Stauber, remain optimistic that tenants will flock to the new spec buildings. The market's recent history bolsters those views. Of the seven big box construction projects completed during the third quarter, five were built on a speculative basis, and of these, two were leased upon completion.

And even with this robust level of new construction, the region's vacancy rate continues to get even better. According to Colliers' report, the vacancy rate for modern big box facilities improved by 34 bps during the third quarter to 7.17%, one of the lowest rates recorded for this segment of Chicago's industrial market.

“We don't expect these numbers to change dramatically,” says Stauber. “Our sense is that cautious optimism is called for.”

Net absorption among big box buildings during the third quarter of 2016 totaled 3.6 million square feet, bringing the net absorption tally through the first three quarters of the year to 11.4 million square feet, Colliers found. This is ahead of the 10.3-million-square-foot net absorption total during the first three quarters of 2015. Big box net absorption during the third quarter represented 69.3% of the 5.3 million square feet of net absorption recorded among all buildings in Chicago's industrial market.

One open question is whether all the new specs will curtail the demand for new build-to-suits, he adds, now that users will have a plethora of options. Many of the new specs have 36' clear heights, perfectly geared toward e-commerce users, and other users, such as food distributors, can have the buildings adapted for their specific uses. “The spec developers have filled that void,” says Stauber.

“We don't expect these numbers to change dramatically,” says Stauber. “Our sense is that cautious optimism is called for.”

Instant Insights /

Big Box Developers Get Ready to Deliver New Specs

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