Latest posts by Randolph Taylor (see all)
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Warehouse space vanishing as fast as you can click Buy it
Warehouse space vanished faster in 2016 than it ever has in the Chicago area, led by Amazon and other online retailers.
Industrial tenants absorbed an all-time high of 26.6 million square feet in the area last year, according to Seattle-based Colliers International. That more than offset 22.3 million square feet of new construction completed in 2016, the highest total in 11 years.
Overall vacancy fell to 6.7 percent in the fourth quarter, down from 6.8 percent in the previous period and 7.3 percent a year earlier. That's the lowest level of vacancy since the first quarter of 2001.
"This is about as good as it gets," said broker David Bercu, a principal in Colliers' Rosemont office. "We've got really strong demand, equilibrium between supply and demand, a healthy economy and no apparent indicators that things are going to slow down. What's really positive is that there is strength across all geographic areas of the market and all deal sizes."
Amazon continued to be a dominant force, signing the three largest leases of the fourth quarter. The Seattle-based e-commerce behemoth accounted for five of the 10 largest industrial leases in the area in 2016.
Its fourth-quarter deals included two in Aurora: 954,720 square feet at 1 Duke Parkway and 402,860 square feet at 4200 Ferry Road, both in Butterfield Corporate Park. The second-largest deal of the quarter was a 626,848-square-foot lease at 1750 Bridge Drive in Waukegan.
"Amazon is a beast," Bercu said. "Now that they've made a concerted effort to get into Illinois, they are absorbing space at a rapid pace.
"I think they've got their eyes on some other opportunities. They'll probably make a couple more deals (in 2017), but I don't think they'll be responsible for five of the 10 largest again."
Demand, as measured by net absorption—the change in the amount of occupied space compared with the previous period—was positive for the 19th consecutive quarter. Tenants gobbled up 7.1 million square feet during the fourth quarter.
The Chicago area has about 1.35 billion square feet of total warehouse space.
Developers are trying to line up new projects to meet demand. In some top markets, such as around O'Hare International Airport, sites are tough to come by, Bercu said.
"In and around O'Hare, the cost of land is getting back to 2007 pricing, which was the peak," he said. "Anything that's considered an infill location is achieving premium pricing."
Although there are no obvious factors that would slow the industrial market in 2017, President Donald Trump's saber-rattling on international trade bears watching, Bercu said.
"Our industry thrives on imports and imports," he said. "If there's less product coming into the United States and being shipped out, companies aren't going to have as much need for warehouse space. I don't think it's a major concern, but it's something we'll have to keep an eye on."