CHICAGO—The Chicago industrial market just had one of its best quarters ever, capping off what had already been a solid year. Tenants absorbed another 7.1 million square feet of space, according to a year-end report from Newmark Grubb Knight Frank. That brought positive net absorption for 2016 up to 15.3 million square feet, close to the 15.6 million square feet absorbed in 2015. And developers have been hard-pressed to keep up with this robust demand. In the fourth quarter they added another 6.3 million square feet of space to the region's inventory.

The market has now seen 27 consecutive quarters of growth. Five or six years ago, if you asked experts that study or work in the market whether such an extended run of good news was possible, most probably would have said no.

“When you stand back and look at those numbers, it's kind of amazing,” Corey Chase, an industrial broker with NGKF, tells GlobeSt.com. And not only has the vacancy rate been cut roughly in half since the height of the recession, it has continued to sink in spite of all the new construction. During the fourth quarter, the rate went from 7.9% to 7.6%, the lowest rate in more than ten years.

The I-80 submarket has been leading the region for some time now, and the last quarter was no different. Tenants there absorbed another 2.7 million square feet. IKEA and Samsung, for example, combined to take 799,000 square feet at CenterPoint's intermodal center in Elwood, IL. Furthermore, Post Foods occupied 792,000 square feet at RidgePort Logistics Center and Amazon moved into a 747,000 square foot spec project at Laraway Crossings Business Park. These actions helped push down the submarket's vacancy rate to just 5.5%, a remarkable drop of 390 bps.

Chase adds that the big e-commerce firms, Amazon most of all, have garnered much of the attention during this cycle, and rightly so. Amazon leased a total of two million square feet across three properties during the quarter, accounting for 41% of the space leased. Still, “there are a lot of companies in the e-commerce business operating below the radar that have gobbled up a lot of space.”

And these firms, which includes many retailers that have decided they need their own new supply chain infrastructure, have further boosted confidence. “Developers that have waited and held onto land for years now seem confident enough to start building,” says Chase. Builders currently have a total of 18.8 million square feet in 53 projects underway, and 9.1 million square feet, or 48.4%, is on a speculative basis.

Chase has been in the business for 32 years, and says “the last two or three have been the most active of my career.” He also expects that 2017 will be another year quite similar to 2015 and 2016, with healthy rates of construction starts, absorption and rent growth. It is possible, however, that a slowdown will begin in 2018 due to higher interest rates, and less demand for new buildings as users settle into the many recently constructed class A spaces, among other factors. “Eventually this is going to come to an end.”

Instant Insights /

Chicago Industrial Market Approaches 2017 with Confidence

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