Strongest Landlord Market for Chi. in 30 Yrs.

CHICAGO—The Chicago region's industrial market rebounded dramatically in the second quarter as vacancy, absorption, leasing and the level of new construction activity improved from the prior quarter, according to a recent report from Colliers International. In fact, the market has put up such solid, consistent numbers that some experts say we're now in a historic time.

“I tell my clients that this is the strongest landlord market in 30 years,” Jack Rosenberg, Colliers' Chicago-based national director for logistics and transportation, tells GlobeSt.com. He highlights the fact that while deliveries of major build-to-suit construction projects have been largely steady since 2008, albeit with a blip or two in 2010 and 2012, “now we're seeing speculative construction come back in a big way and it's happening all across the US.”

In 2010 and 2011, for example Chicago-area developers did not deliver a single speculative project of more than 300,000 square feet. But in 2013 developers finished 1.83 million square feet of such projects, and this number jumped to 3.3 million by 2014, Colliers found. And most impressively, in the first half of this year, developers have already completed more than 2 million square feet of these “big-box” projects.

And things don't seem to be slowing down. As reported in GlobeSt.com, JLL and Exel recently announced a 1 million square foot project in the Joliet area, and plan to finish that building by the middle of next year.

The Chicago area second quarter industrial vacancy rate dropped 36 bps from the first quarter level of 7.59% to 7.23%, according to the recent Colliers report. Vacancy has declined 120 bps from the 8.43% rate reported one year ago. The I-80/Joliet Corridor and Chicago North markets achieved the highest reductions of 1.96% and 1.32% respectively. And if spaces rendered obsolete by age or low ceiling heights are removed from these calculations “we're now near zero vacancy,” says Rosenberg.

Net absorption soared to 8.1 million square feet during the second quarter, “a staggering increase,” according to Colliers, “from the 1.3 million square feet reported in the first quarter.” And vacant supply in the Chicago area dropped to 96.1 million square feet, a decline of 4.4%. “That is stunning,” Rosenberg says, pointing out that Chicago's vacant supply has not been below the 100 million mark since 2002.

And on top of all these trends, “there has also been massive rent growth,” he adds. Several years ago, for example, Colliers helped complete a lease for a paint company at a massive speculative facility in Romeoville in which the landlord got about $3.45 per square foot. “That same property would go for $4.25 today.”

2017 might be the year when things start to swing back in favor of tenants. Rosenberg says that by the latter half of 2016, and extending into the next year, developers will be finishing up millions of square feet of speculative space, and at least temporarily, tenants will have more opportunity to bargain. Still, “if 2009 was the worst year to be a landlord, 2015 is the best.”