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CHICAGO-While vacancy has increased in the second quarter of 2008, the industrial market for the Chicago area is continuing to weather the credit crunch and weakening economy that is upsetting other sectors. “It is fairly healthy,” says Mitch Rothstein, SVP with Transwestern. The industrial market “historically has been fairly stable and has less peaks and valleys than office or retail,” Rothstein says.

Vacancy for industrial space was up slightly from 9.1% for the first quarter of the year, and has inched up to 9.5%, according to Transwestern’s second quarter market report. “It is really not a significant kind of increase,” Rothstein says. “It is only significant if it was your building that became vacant last week.”

Will County, however, is the odd one out in that it has both the highest vacancy rate and the highest amount of construction activity, according to research analyst Jennifer Olsen and industrial sales manager Randy Koch, both with Grubb & Ellis. The vacancy rate in the Central Will submarket for the second quarter of the year was nearly 21%, according to Grubb & Ellis statistics. “There has been a lot of speculative product coming online,” Olsen says. There is currently nearly 4.8 million sf under construction in the Central Will submarket, with more than 4.2 million sf of it warehouse and distribution space, according to Grubb & Ellis. The nearly 1.2-million-sf CenterPoint Intermodal Center in Elwood, IL is expected to be delivered next month.

In general, construction activity is slightly up across the Chicago area, but is expected to decrease once current projects are finished, Rothstein says. There is now 10.4 million sf of space under construction, which is down from the 12.7 million sf under construction in the first quarter, but an increase from the 8.6 million sf under construction last summer, according to Transwestern’s market report. Developers are finishing up their current projects but are unlikely to begin as many new projects “with people seeing a softening market,” Rothstein says.

Koch does not believe the economy will improve in the immediate future. “I do not think we will see a turnaround until after the first of the year, or at least until after the election,” he says. Rental rates increased 2.5% in the first half of the year, with an average rent of $5.40 per sf, triple net, according to Transwestern’s report.

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