Industrial N Illinois

Industrial sector performance projected to outperform 2017 in the Chicago market

Industrial sector performance should outperform 2017 in the Chicago market,ph1

Nationwide, the industrial sector continued it’s strong streak in the first quarter of 2018, buoyed by ecommerce and manufacturing. The same holds true in Chicago, which is projected to outperform last year’s activity, according to a new Cushman & Wakefield repot.

Across the country last year, ecommerce sales grew by more than 15 percent year-over-year, dwarfing brick-and-mortar sales growth and upping demand for industrial property. And while U.S. manufacturing grew for the seventh consecutive month in March, indications are that after a post-election surge, the rate of growth is easing.

In Chicago, new industrial market leasing activity totaled nearly 7.2 million square feet in Q1 2018, a 38.1 percent increase over the Q1 2017 total. Transaction velocity of large (300,000 square feet and bigger) projects was off the record highs of two years ago, but there were notable signings, such as the nearly 600,000 square feet that Kenco Logistics leased at 5800 Industrial Road in Monee, Illinois in the I-80 Corridor.

The first quarter of 2018 witnessed smaller average deal size, though there were six new deals signed over 300,000 square feet. Cushman & Wakefield is currently tracking over 15 active tenant requirements larger than 100,000 square feet that are expected to close by the end of the year.

Investment sales activity greatly increased with a 106.5 percent gain over Q1 2017 to finish the first quarter at just under 9.6 million square feet. More than half of this activity was conducted by Blackstone REIT as the New York-based firm grew its Chicago industrial portfolio by more than 5 million square feet over two transactions.

New construction in the first quarter was driven by spec projects, as nearly 90 percent of the 3.4 million square feet of first quarter completions were delivered on a speculative basis. Developers and equity providers should be encouraged by increased tenant activity at the start of 2018, absorbing existing spec space.

“Construction starts decelerated in the second half of 2017 with developers taking a more disciplined approach waiting for existing space to lease up before breaking ground on new projects,” the report’s authors wrote. “With only 7.5 million square feet under construction at the start of 2018 (compared to 16.7 million square feet at the start of 2017), tenant demand can catch up and begin filling up newly delivered, speculative supply.”

The overall outlook, according to Cushman & Wakefield, is that the quick start the Chicago market has seen to start 2018 should help the region outperform last year. “It is likely that the increased leasing activity will motivate developers to break ground on delayed proposed projects,” the authors wrote. And while developers may be more cautious with new construction in submarkets like I-55 and I-80 with plenty of supply, tenant demand in other areas such as Lake County may spur spec construction.