Chicago Tenants Are Digging Deeper And Searching Far From Home For Industrial Space
Those on the hunt for industrial space in Chicagoland are being forced to take what they can get, according to a new Savills report that indicates tenants are paying more and moving farther afield as the sector continues to boom.
According to the report, asking rents in Q1 2022 rose 7.5% over the last three months of 2021, pushing to $5.76 per SF, while almost 7M SF of industrial space was absorbed — nearly double the five-year quarterly average. As it has for four quarters running, vacancy dropped, falling from 9.4% in Q1 2021 to 6.8% a year later.
"Fewer affordable options are available for occupiers seeking strategic proximity to airports and major arteries,” Savills Public Relations Manager Aaron Shirley said in an email. “With much of the new development in the Chicago market taking place in more outlying locations, some companies are being forced to locate further away from O’Hare, larger suburbs, and the major interstate interchanges.”
In some cases, the lack of options encouraged tenants to take space in more rural locations, which the report notes has an upside in the form of lower asking rents and property taxes. Others, like Dermody Properties, are repurposing other building types for industrial use. Dermody acquired the former Allstate office campus in Northbrook for $232M in late 2021 and plans to convert the 120-acre site into 3M SF-plus of warehouse buildings.
For those willing to locate farther away from the city, there is space to be had. Savills reported about 4.5M SF delivered in the first quarter of 2022. More than a quarter of that is at two Kenosha, Wisconsin properties, which remain fully unleased.
“Looking ahead, with almost 28 million square feet of new product currently under construction, quality options exist for occupiers in the market, albeit at price points higher than some tenants are used to paying,” Shirley said.
He added that although rents have risen precipitously since the start of the pandemic, “Chicago remains a comparatively affordable market as compared to many coastal U.S. markets and, for that reason, will continue to be attractive to occupiers.”
One of the largest leases of the quarter was signed by Amazon, which took up more than 1M SF in Kenosha for a same-day distribution center. Power management company Eaton leased 371K SF in Woodridge and Pitney Bowes signed on for 363K SF in Joliet.
According to JLL, average rents for U.S. industrial space have jumped 37% to $7.11 per SF since 2016 — a trend not likely to slow down for at least another two years. Demand for industrial space in the U.S. has grown 24% since 2010, JLL said, though supply is up only 18% over the same period, with Chicago enjoying some of the biggest growth, alongside California’s Inland Empire, Dallas-Fort Worth and Central Pennsylvania.
"Given the heightened demand experienced in 2020 and 2021 and the velocity at which it is going forward, we are starting to see the first wave of a supply crunch," JLL said in a March 31 report.
