Chicago Industrial Vacancy Nearing Pre-recession Levels

Randolph J. Taylor MBA, CCIM, Broker
Coldwell Banker Commercial Naperville, IL

The vacancy rate for local industrial property is finally approaching pre-recession levels, fueled by a surge of first-quarter dealmaking.

Chicago-area industrial vacancy fell to 9 percent in the first three months of the year, down from 9.5 percent in the fourth quarter and 10.7 percent a year earlier. The local vacancy rate hasn’t been that low since the beginning of 2008, the first few months of the recession.

The falling vacancy reflects a heavy volume of small and mid-sized leases by companies that were hesitant to make long-term lease commitments in recent years.

Landlords leased a combined 10.3 million square feet in the first three months of the year, the highest first-quarter total in more than a decade, according to Colliers. The first quarter is sometimes slower because it follows the rush to complete year-end deals, but leasing volume rose 39 percent from the fourth quarter. It was just the third time in the past 13 quarters that leasing exceeded 10 million square feet.

Owens & Minor Inc., a Virginia-based medical supplier, completed one of the few large deals of the quarter, signing a 515,000-square-foot lease in Carol Stream. There were just four leases of more than 400,000 square feet in the quarter.

“There’s a soft spot in the market, which is the megadeal of 700,000 square feet and above,” Mr. Bercu said. “In a market the size of Chicago, you’d like to see more velocity in that area of the market. But it only takes a few users to change that.”

Betting on continued demand for smaller leases, Chicago-based HSA Commercial Real Estate earlier this month said it has formed a venture with Denver based Industrial Income Trust to develop a 180,480-square-foot warehouse in southwest suburban Woodridge on speculation, or without tenants signed in advance. That building, planned for completion by this fall, will cater to tenants needing as little as 20,000 square feet along Interstate 55.

“It’s critical to be one of the first buildings out of the gate to capture that demand,” said Craig Phillips, an executive vice president at HSA. “Nobody wants to be the fifth spec building on the market.”

Demand, as measured by net absorption, was more than 6 million square feet, marking the sixth time in seven quarters of positive absorption. Still, the negotiating advantage on new leases has yet to swing to landlords.

“If the absorption continues, you’ll see upward pressure on rents,” Mr. Bercu said. “We haven’t reached the point where owners have the leverage. If we continue this pace, we’ll get there in the near term.”

ChicagoRealEstateDaily Ryan Ori April 15, 2013
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