The Chicago-area industrial market capped off a strong 2019 with yet another quarter of positive absorption and vacancy hovering near the five-year low recorded at midyear, according to the newly released “Fourth Quarter 2019 Market Peek” from NAI Hiffman, the largest independent real estate services firm in the Midwest.

While the overall vacancy rate ticked up to 5.79% in the fourth quarter – compared to 5.63% in the third quarter and 5.43% in the second quarter, its lowest level in the last 20 years – the firm attributes the marginal increase to a handful of speculative facilities that delivered vacant during the last three months of 2019. In another robust year for development, industrial projects under construction totaled 20.6 million square feet at year-end – roughly equal to the 20.3 million square feet under construction at the end of 2018.

Despite the surge in supply, industrial users continue to fill space almost as fast as it’s built, according to the NAI Hiffman data. Net absorption totaled 17.1 million square feet in 2019, 17.3% above the 2018 total of 14.6 million square feet. In 2019, the majority of space was filled between January and September, when absorption averaged 5.1 million square feet per quarter. Absorption totaled just 1.7 million square feet last quarter but 27 tenants signed leases greater than 50,000 square feet during the period, which will translate to more than 4.6 million square feet of occupancy in 2020.

“Retail and e-commerce giants like Amazon and Target continue to grab headlines, but it’s the ripple effect of these marquee deals that is driving a lot of the activity in the Chicago area as users small and large retool supply chains to facilitate faster deliveries,” said Michael Flynn, chief operating officer at NAI Hiffman, which last year represented The Opus Group in a 1.2 million-square-foot lease with Target Corp. for a distribution center in Joliet. “Not only does Chicago have the modern supply and central location, but it also boasts a deep labor pool, including technically skilled workers who are in high demand as warehouse operations become increasingly automated.”

Other notable stats from the fourth-quarter report include:

• Average net rental rates were $5.25 per square foot in the fourth quarter, essentially unchanged from $5.26 per square foot in the previous quarter.

• New leasing activity totaled 10.58 million square feet in the fourth quarter, down slightly from the previous quarter’s 11.46 million square feet. The I-55 Corridor recorded the highest fourth-quarter total, with 1.7 million square feet, followed by the I-80/Joliet Corridor (1.63 million square feet), Central DuPage (1.2 million square feet), and O’Hare (1.08 million square feet).

• The I-80/Joliet Corridor had the highest positive net absorption in the fourth quarter (2.48 million square feet) and also for the year (5.83 million square feet). The submarket appeals to e-commerce and logistics operators seeking proximity to intermodal transportation, including I-80, I-55, and the BNSF and Union Pacific railroads.

• More than 3 million square feet of industrial product was delivered during the last three months of the year, down from the third quarter’s total of 7.3 million square feet. The submarkets with the highest fourth-quarter deliveries were: I-88 Corridor (777,908 square feet), I-55 Corridor (750,314 square feet), and Southeast Wisconsin (403,741 square feet).

• Forty percent of buildings completed during the fourth quarter were build-to-suit projects, including S&S Activewear (750,314 square feet) in the I-55 Corridor; Daifuku Wynright (320,400 square feet) in Northwest Indiana; and Pharma Logistics (126,611 square feet) in Lake County.

• The following submarkets had the greatest amount of square feet under construction at the end of 2019: I-55 Corridor (4.44 million square feet), Southeast Wisconsin (4.22 million square feet), I-90/Northwest (1.82 million square feet), and Chicago South (1.75 million square feet).

• Twenty-four industrial projects totaling 7.4 million square feet broke ground in the fourth quarter, nearly matching the third-quarter groundbreakings of 23 buildings totaling 7 million square feet.

• Two-thirds of the 20.6 million square feet of industrial that remained under construction at year-end is speculative development.

For additional research from NAI Hiffman, and to download a full copy of the report, visit the company’s website. 

About NAI Hiffman:

NAI Hiffman is the largest independent real estate services firm in the Midwest, providing leasing, management, tenant representation, capital markets, project management and marketing services for institutional and private owners and occupiers of commercial real estate. It currently leases and manages an 89+ million square foot portfolio of more than 700 commercial properties throughout the region, with a primary focus on metropolitan Chicago.  With more than 200 employees, NAI Hiffman is the Chicago-area representative for NAI Global, the world’s largest managed network of real estate service providers, with more than 6,700 local market professionals managing more than 380 million square feet of property. NAI Global has more than 375 offices strategically located throughout North America, Latin America, Europe and Asia Pacific. For more information, please visit www.hiffman.com.