Industrial Vacancies in Chicago Hit Historic Lows in Q2
“As vacancy continues to compress, we expect landlords to be able to push asking rents most notably on big box buildings.”
Industrial vacancies are at historic lows in the Chicago region, dropping 50 basis points over the second quarter to 4.9%, as asking net rents jump and year-to-date net absorption swells.
A new report from JLL shows that activity picked up considerably along the I-55 corridor in the Windy City, pushing vacancy to the lowest level since Q3 2016. Year-to-date absorption in the market is 3 million square feet stronger year-over-year, while direct asking rents increased to $5.49 per square foot and sublease asking rents stayed steady at $5.30 per square foot.
A second generation manufacturing space lease inked by Tangent Technologies in the former Caterpillar plant in Montgomery, Ill., along the I-88 corridor, was the quarter’s largest deal. The Montgomery submarket saw big blocks of Class C space get leased up during the quarter, driving vacancy to 2.7%, and the nearby Fox Valley submarket also showed low vacancy at the same figure. In Lockport, the 610,000 square foot I-355 Business Center achieved full lease-up during the quarter thanks to a new Tesla lease and an expansion by Berlin Packaging.
About 2.7 million square feet of new construction was delivered during the quarter, led by Hillco Redevelopment Partners’ 1- million-square feet. Target distribution center at I-55 and Pulaski. JLL analysts also noted that CenterPoint Properties and Northern Builders, in partnership with USAA, are expected to deliver the next wave of 1 million-square feet. bulk speculative developments in early 2022.
“As vacancy continues to compress, we expect landlords to be able to push asking rents most notably on big box buildings,” the report notes.
Investor activity also remained strong in the Chicagoland area, led by Stockbridge Capital Group’s $230 million sale of 11 buildings comprising 2.6 million square feet in Elgin’s Northwest Corporate Park to High Street Logistics Properties. Near O’Hare Airport, Goldman Sachs bought a 146,000-s.f. partially leased speculative redevelopment from CA Ventures at 500 E Devon in Elk Grove Village at a rate of $165 per square foot.
Chicago enjoyed a strong Q1 as well and ranked second among major US markets for new construction deliveries, according to Avison Young. The firm says strong tenant demand from large corporate healthcare, retail and e-commerce businesses is driving demand, as is the push for last-mile distribution space, which pushed activity into infill locations throughout the region.