Warehouse vacancies rise across Greater Chicago as industrial demand slumps

Chicagoland has grown fat with warehouses.

The vacancy rate for Chicago-area industrial property rose for the second quarter in a row to 4.64 percent in June, Crain’s reported, citing a report from Colliers International. And the warehouse vacancies are expected to widen.

Developers are expected to complete 41.9 million square feet of warehouses this year across the Chicago region, most of them not yet leased, according to Colliers.

That’s the biggest yearly total ever, surging past the prior record of 31.4 million square feet set last year. Many developers started their projects before a hike in interest rates began to chill the industrial market.

It took off during the pandemic when demand for warehouses by Amazon and other e-commerce retailers drove a surge in building and higher rents. At the end of last year, the local industrial vacancy rate hit a record low of 4.5 percent.

Then supply overcame demand.

Net absorption, a key measure of demand that represents the change in the amount of leased space versus the prior period, last year was 40.6 million square feet in the Chicago market, the second-highest total ever, according to Colliers.

But absorption for the first half of this year was 11.9 million square feet, down from 23.8 million in the first six months of 2022.

Fewer developers are breaking ground on new projects this year, which should allow the market to move back into equilibrium next year, according to Craig Hurvitz, senior director of research at Colliers.

“Demand will catch up with new supply and the vacancy rate is expected to stabilize and begin to decline again later in 2024,” he told Crain’s.

If the trend continues, absorption for the full year would be 24 million square feet.

One of the biggest additions to the stock of supply will come courtesy of Nevada-based Dermody Properties, which expects to complete half of its 3.2-million-square-foot logistics campus development on the former Allstate headquarters campus in Glenview. None of the five buildings within the 10-building project have yet been leased.

Meanwhile, landlords aren’t cutting rents. They’re raising them, according to David Bercu of Colliers’ Rosemont office.

Warehouse rents have jumped 16 percent to 19 percent from last year in the region’s strongest submarkets, including central DuPage County and around O’Hare International Airport, he said.

Companies are also still inking deals for large industrial spaces. They include a 1.2-million-square-foot building leased by Unilever in New Lenox, a 712,000-square-foot lease by Saddle Creek and a 678,000-square-foot lease by Ecolab, both in Joliet.

— Dana Bartholomew