Big-Box Industrial Tenants Signed Leases At Record-Setting Pace In Q1

Chicago-area owners of big-box distribution centers secured a record-breaking amount of leasing in the first quarter, and as the majority of their tenants have low exposure to disruptions caused by the pandemic, at least moderate growth should continue this year.

There were 24 new leases signed, totaling 8.5M SF, a new quarterly record for the sector. That includes four leases for more than 1M SF, according to Colliers International’s latest report on distribution centers with more than 200K SF and ceilings 28 feet or higher. The metro’s vacancy rate fell 58 basis points to 7.95%, even though developers completed another 4.7M SF.

“Some of these transactions were pent up and a long time coming,” Colliers International principal Matthew Stauber said.

Much of that burst in demand came from e-commerce companies such as Amazon and do-it-yourself home improvement retailers such as Lowe’s, he added. Although many sectors of the economy took big hits over the past three months, these firms seem to be getting stronger, due to big increases in online buying and many homebound consumers starting long-planned home repairs and projects.

Of the region’s six largest leases, three were from either Lowes’s or Amazon, according to Colliers. Lowe’s signed for a little more than 1.3M SF at 1600 Boudreau Road in south suburban Manteno, the quarter’s third-largest lease. Amazon took 1.3M SF in a build-to-suit lease for 1255 Gateway Blvd. in Beloit, Wisconsin, the fourth-largest, and 752K SF at 23700 West Bluff Road in Channahon, the quarter’s sixth-largest. Ferrara Candy signed the biggest lease, a 1.6M SF build-to-suit at ChicagoWest Business Park in DeKalb, about 65 miles west of Chicago. 

Stauber said it is likely that consumers forced to buy online after the shutdown of so many retailers will continue doing so even after the present crisis ends, buoying the industrial sector through hard times.

“My parents did very little online shopping before, but that’s changed,” he said. “They now realize the ease and convenience of doing it that way.”

That sea change in shopping habits means developers should stay busy creating big new spaces as close as possible to consumers, Stauber added. According to the Colliers report, 14.7M SF is now under construction, up from 12.3M SF at the end of 2019.

Of the new first-quarter big-box leases and lease expansions, 62% were signed by users with low exposure to disruption from the pandemic, including e-commerce, logistics and packaging tenants, Stauber said. Another 13% were moderate-exposure users like manufacturers, and the remaining 25% were high-exposure, including many clothing distributors.

Amazon has continued to complete deals for new space in the second quarter. The company confirmed in late April that Venture One Real Estate will build it a 1.2M SF fulfillment center in south suburban University Park.

But that doesn’t mean the region’s industrial sector will go forward at the same record-setting pace. After tens of millions of people filed for unemployment, it’s expected that some users will pull back and developers will put off some planned spec projects, Stauber said.

“There’s no doubt COVID will have a negative impact in the second quarter, and we’ve already seen a slowdown, but it’s relatively small, at least relative to the office and retail sectors, and industrial will continue to be one of the strongest sectors in commercial real estate,” he said.