Chicago Warehouse Market Charges Back in Second Quarter

The lack of new construction projects is helping revive Chicago’s industrial real estate market.

Leasing in the Chicago-area has recently surged due to higher interest rates curbing new construction across the region, according to a new report from Colliers.

Only 10 new industrial buildings totaling 2.9 million square feet were completed in the second quarter of 2024. Of these completions, 1.1 million square feet were built on spec, the lowest figure since the second quarter of 2021.

The limited delivery of new, available space, coupled with increased demand, contributed to the vacancy rate falling from 5.29 percent in Q1 to 4.84 percent in Q2. The decrease in vacancy rates also marked the end of five consecutive quarters of vacancy increases, which has not only benefited warehouse owners but temporarily stabilized the market.

“There’s not as much being built,” Colliers Mike Senner told Crain’s. “Not as much will be delivered of scale in the next handful of months, so I could see the vacancy rate holding or compressing because of that.”

Even though there was a slowdown in completed projects during the second quarter, data shows that there was a notable increase in build-to-suit projects under construction. Roughly 8.6 million square feet were under construction at the end of Q2, marking a 29-percent increase versus the previous quarter and the highest level of build-to-suit activity since the third quarter of 2022.

The total amount of industrial space leased was also on the rise. Between April and June, net absorption was 9.5 million square feet. This brought the total for the first half of 2024 to 15 million square feet, which was greater than the 12 million square feet versus the same period in 2023.

New leasing activity in the second quarter, which includes new leases and lease expansions, totaled 9.5 million square feet among 108 new leases and lease expansions. This represented a 6.8-percent increase from the previous quarter’s total of 8.9 million square feet.

There were several notable lease transactions throughout the region in the second quarter, with Samsung topping the list with a 1.55 million-square-foot warehouse in University Park. Other lease deals included Amazon and Post Consumer Brands, with both leasing around 1 million square feet of industrial space, Colliers data shows.

The report notes that the strong leasing activity, positive net absorption, and vacancy rate decreases witnessed during the second quarter are expected to continue through the end of the year.

– Andrew Terrell