Chicago Industrial Market Hits Lowest Availability Rate in Two Decades

The Chicago industrial market continues to improve, recording its 22nd consecutive quarter of positive absorption in Q4 2015, which lowered the availability rate to 6.5 percent—the lowest it has been since 1996, according to CBRE Research.

“Industrial leasing, user sales and capital markets activity remains strong across the board nationally,” said Cal Payne, senior associate at CBRE. “Chicago is one of the strongest industrial markets, but tertiary markets across the Midwest have also experienced a surge in activity. The most movement we’re seeing is among third-party logistics, warehousing and transportation companies.”

The fourth quarter recorded 7.6 million square feet of positive absorption, bringing the annual total to 23.1 millions square feet.

Of the top 25 transactions in Q4, 43 percent of them were with transportation and logistics companies, while 37 percent were from manufacturing companies.

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“We have seen growth in the manufacturing sector and saw an increase in the number of manufacturing deals in Chicago in the most recent quarter,” said Payne. “The residential and commercial construction markets are very active right now and manufacturers that supply these industries have seen a significant boost.”

In West Chicago, Ill., Payne and CBRE’s David Prell recently represented Simpson Strong Tie, a supplier of structural building products, in the purchase of a 174,400-square-foot facility. The firm is moving from a 50,000-square-foot facility in Addison, Ill.

“Due to low interest rates and availability of financing, we are seeing many manufacturers purchasing facilities now after leasing overflow space for the past few years,” said Payne.

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As the availability rate has continued to dip, rents have steadily risen for landlords. The average market rents climbed to $4.76 per square foot in Q4, representing a 5.78 percent increase from year-ago levels and considerably higher than the pre-recession peak of $4.53 recorded in Q1 of 2008.

With this rent growth has come new construction activity, as 2015 ended with 15.3 million square feet of construction starts, up 16.6 percent from 2014.

“We’ve seen the most construction activity in the O’Hare, Elgin and I-55 submarkets,” said Payne. “Nearly all of the speculative product that came on line has already been leased and I think we will see another wave of new construction hit this year, especially in the O’Hare market, which is very tight. The lack of available product will continue to drive new construction.”

To read the complete report, please visit CBRE Research.

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