Industrial N Illinois

No end in sight for speculative industrial

No end in sight for speculative industrial,ph1
The intermodal center in Elwood, Illinois where CenterPoint Properties is developing 826,755 square feet of new speculative space, part of the 19.5 million square feet of new industrial space currently under construction across the metro.

From this time last year until now, unemployment in Chicago is down and the number of construction jobs are up. The market downturn that many fear hasn’t yet reared its head. All of which means the historic run of speculative development in Chicago continues apace.

According to new Avison Young research, there are 19.5 million square feet of new industrial space currently under construction, a 59 percent year-over-year increase that demonstrates developers’ confidence in the Chicago market’s capacity for high-quality product. Southern Wisconsin, the I-80 Corridor and the I-55 Corridor saw the most activity, cumulatively accounting for more than half of all new construction last quarter.

“Industrial businesses, particularly those in the logistics and food service areas, continue to focus on the Chicago area market,” said Chris Lydon, a principal in Avison Young’s Chicago Office. “Many submarkets that are closer to the city have little to no space available for new buildings, so we’re continuing to see speculative development moving to outlying submarkets such as Southern Wisconsin.”

Southern Wisconsin indeed led all submarkets in new construction with 4.9 million square feet built in Q4 2018, a 50 percent increase from the previous quarter. The I-80 Corridor currently has the highest vacancy of any submarket at 12 percent, largely due to the 15.4 million square feet of new construction that has been delivered in the south suburban submarket over the past two years. In the I-55 Corridor, 2.2 million square feet of new construction will add to the submarket’s inventory, which is the third-largest in the metro at 96.7 million square feet.

The high level of spec development in Chicago’s industrial market is offset by accelerated leasing activity. A total of 8.3 million square feet was leased throughout the fourth quarter of 2018, a 1.2-million-square-foot increase from the previous quarter, or a 16 percent increase quarter-over-quarter.

The largest lease of the fourth quarter was a 750,314-square-foot transaction signed by S&S Activewear, LLC at Prologis Park 355 in the I-55 Corridor. In fact, the submarket saw a number of new leases, including RJW Transport’s 416,504-square-foot lease in Romeoville, Old World Industries’ 354,400-square-foot lease in Bolingbrook and Arro Corporation’s 282,933-square-foot lease in Hodgkins.

The big box spec projects under construction in Q4 2018 include Logistics Property Company’s 1.8-million-square-foot development in Kenosha, planned for delivery this quarter. Two projects underway in the I-80 Corridor are due for completion in the spring: Principle Construction Corp.’s 879,040-square-foot development in Monee and an 826,755-square-foot project in Elwood by CenterPoint Properties.

In the O’Hare submarket, six properties totaling 623,416 square feet were delivered last quarter. Though these deliveries increased the vacancy rate 120 bps to 5.8 percent between the third and fourth quarters, these properties by developers including Panattoni Development Company, Ridge Development and Stream Data Centers have experienced healthy leasing activity.

“With construction volume remaining strong, we can anticipate an additional 1.6 million square feet of inventory being delivered to the market,” Lydon said. “While this will ultimately increase market vacancy, the robust demand from O’Hare-related users will remain solid throughout 2019. We anticipate the market will experience positive absorption during 2019.”

There are 10 additional buildings totaling 1.6 million square feet currently under construction in the O’Hare submarket. Potential tenants have plenty of options as the area saw 14 properties delivered over the past 12 months totaling more than 2 million square feet.

There were 181 leases signed for a total of 5 million square feet within the O’Hare submarket last year, with an average deal size of 28,268 square feet. The average asking rent in the submarket is $5.44 per square foot, ahead of the $4.61 average for the overall market.