Chicago’s “Unbelievable” Industrial Real Estate Sector
Sidebar to January 2020 Regional Spotlight: Why Chicago Works for Investors in 2020
Local brokers are finding it difficult to find enough positive adjectives to describe Chicago’s warehouse market.
“The demand has been unbelievable,” said Fred Regnery, principal broker at the Colliers Rosemont office, noting that even trade tensions with China have not dampened demand for this type of property. “The underlying fundamentals have been so good the tariffs haven’t been big enough to change anybody’s plans.”
Industrial and warehouse properties in the Chicago area are getting harder and harder to find as vacancy rates plummet in the area. Local industrial vacancy rates were just 6.15% in third quarter 2019, down from 6.4% a year prior. Local vacancies have not been that low since early 2001.
Analysts say the sector is thriving in large part because of “boosted sales of goods manufactured and stored in industrial buildings.” Crain’s described “the rise of online shopping” as “rocket fuel to the market” and cited Amazon’s ongoing expansions as a big factor in the sector’s growth.
With more retailers taking their products online, the demand for warehouses to support the supply chains necessary for e-commerce has burgeoned. Amazon alone plans to open two “delivery stations” in Chicago suburbs Skokie and Channahon that will boast a cumulative 1.3 million square feet and create hundreds of new jobs in these areas. Another vendor, British liquor company Diageo, is erecting a 1.5 million-square-foot warehouse in Plainfield.
Industrial warehouse space demand is measured by net absorption, meaning the change in the amount of leased space compared to previous time periods. In third quarter 2019, the net absorption for the Chicago market was 9.2 million square feet, Colliers reported. That is the most absorbed in a quarter since 2005. Chicago net absorption had been positive for 30 consecutive quarters at that point.
In fact, the metric has been so consistent that developers have not yet overshot the market despite erecting huge concrete boxes almost anywhere there is space to put them. Colliers estimated Chicago-area absorption would total 22.5 million square feet at the end of 2019, the second-highest amount absorbed during the current economic cycle.
