CHICAGO—Distributors of consumer products continue to establish new operations in the Chicago metro area and drive the need for more big box facilities. New leases totaled 4.1 million square feet among 19 new leases signed for buildings 200,000 square feet or larger and with ceiling heights of at least 28’ clear, according to Colliers International. That brings this year’s total to nearly eight million square feet.
“That’s the best six-month tally since 2016, and that was a banner year,” Fred Regnery, national director of Colliers International’s industrial advisory group, tells GlobeSt.com. Perhaps most heartening was the fact that six tenants signed new leases for more than 300,000 square feet in the second quarter alone. In 2017, there were a total of eight. “That will definitely help out our vacancy rate.”
The vacancy rate for the big box sector sank for the second consecutive quarter and now stands at 9.04%, or 60 bps below the 9.64% rate recorded at the end of 2017, but well above the 7.71% recorded one year ago. Net absorption was nearly equal to last quarter, totaling 3.5 million square feet between April and June. Meanwhile, developers completed four vacant speculative projects totaling 2.1 million square feet.
Eleven big box development projects totaling 4.8 million square feet were started between April and June, while only seven projects totaling 3.3 million square feet were delivered. The total under construction has increased to 19 projects totaling 7.3 million square feet, the most in three quarters.
“There is currently a bias toward infill projects,” Regnery says, which total more than half of the projects underway, the greatest amount of infill development the big box market has witnessed during the current cycle.
A healthy amount of leasing activity is happening across most the metro area. The large leases in the second quarter, Regnery says, “were all over the map,” including Elgin, North Lake County, Aurora and Bolingbrook.
“The only outlier is the I-80 submarket,” Regnery says. Its vacancy rate jumped from 10.38% to 13.6% in just the last quarter. And developers completed just over two million square feet of new supply even though leasing activity and net absorption was flat.
“What sets I-80 apart is that, unlike other submarkets, it competes with other markets throughout the Greater Midwest,” he says. Tenants here generally establish regional or national distribution operations, and that means going to other hubs like Indianapolis, Memphis, Louisville or Southeast WI is usually an option. “On the coasts you don’t have that situation,” as distributors in the West will choose the Inland Empire, and in the Northeast the choices are mostly limited to NJ or PA’s Lehigh Valley.
However, Regnery believes the vacancies in the I-80 area are temporary. The dense population in Chicago, and the need to serve it, will eventually bring in tenants to fill those empty spaces.
He also expects Southeast WI to become the focus of a lot of attention. There was only about 63,000 square feet of leasing activity in the second quarter, but with the coming of Foxconn, many firms are making plans to begin projects here, including a new one million square foot spec project. “We are seeing tremendous new activity and demand. It’s a real bright spot.”