Industrial space shortage slowing activity
September 29, 2023 — How is the industrial space shortage impacting activity in the Chicago market? What’s driving O’Hare industrial activity? Brown Commercial Group Partner Trinity Scurto, SIOR provided expert commentary on the market in the latest magazine from Chicago Industrial Properties. Here’s her overview and additional information on other Chicago industrial submarkets.
Despite some economic headwinds, strong industrial demand and an industrial space shortage continue to shape the outlook for Chicago’s industrial sector heading into Fall 2023. This is particularly apparent in the O’Hare submarket and Central Kane/DuPage County, two top locations for industrial space users.
The O’Hare submarket remains a top location for many industrial businesses and continues to see limited space availability. The O’Hare submarket recorded rent increases of 8.4% over the past 12 months and had a 2.9% vacancy rate at Mid-Year 2023. There was 1.4 million square feet (msf) of net absorption in the past 12 months, along with 2 msf of construction deliveries. The industrial sector benefited from a neary 10% increase in freight traffic moving through the airport over the past year as some businesses shifted their distribution away from congested West and East coast ports, according to CoStar research.
“We are seeing a slight uptick in availability of industrial space in some submarkets, yet there is still strong demand and a rush to secure space,” said Trinity Scurto, SIOR. “Cook County has seen a lot of activity from REITs and other investors who are purchasing properties in the 10,000 to 50,000-square-foot range to renovate and bring them back to the market. This is adding some space back to the market, but is also pushing up rents and investment pricing.”
Central Kane/DuPage County Sees Development Spike
Development is hot in this region of Chicago, with inventory increasing by 8.2% over the past three years. During that time, 5 msf of industrial space was added. The submarket has a 3.5% vacancy rate, which is near its 10-year low. There is another 1.1 msf of space slated for completion by the end of the year, which could lead to an uptick in vacancy.
South Lake County Overview
Southern Lake County added approximately 780,000 SF of net absorption over the past 12 months, a noticeable change from the 550,000 SF annualized three-year average. This submarket draws industrial businesses due to its convenient access to interstates 94 and 294 and the Port of Chicago intermodal container handler that supports a wide range of manufacturing and industrial companies. Vacancy dropped over 100 basis points year-over-year in this submarket, posting an overall rate of 6.0%.
Rent Growth Strong Throughout Chicago Submarkets
Rent growth across the Chicago area is strong, with submarkets such as O’Hare, Central Kane/DuPage County, the Western Suburbs, Southern Lake County and others all recording rent growth of 8% or more over the past 12 months. In the O’Hare submarket, rents increased at a brisk 8.3% pace, reaching another all-time high of $10.40 PSF. In Central Kane/DuPage County, rental growth dropped a bit to 8.6%, but is still well above the 2.6% all-time average for this submarket.
One outlier is Northwest Cook County, where rent growth was a strong 7.8% over the past 12 months, but just shy of the 8% or higher seen in most other submarkets.
