by Dan Rafter
A total of 15. That’s the number of consecutive quarters in which the Chicago industrial market has seen positive absorption in its big-box sector.
That’s good news. The string of strong quarters means that the vacancy rate in this sector — consisting of industrial facilities 300,000 square feet and larger — is at one of its lowest points ever.
Colliers International recently summed up the strength of the city’s big-box industrial market in its third quarter report on the area’s largest industrial facilities. According to the Colliers report, the vacancy rate in the big-box market here fell to 7.17 percent in the third quarter. That’s down from 7.51 percent in the second quarter and 8.66 percent in the third quarter of 2015.
During the third quarter, this market saw net absorption of more than 3.635 million square feet, up from more than 3.51 million square feet during the third quarter of 2015.
And in one more bit of good news, the net effective rent-per-square-foot jumped to $4.38 in the third quarter, up from $4.33 during the same quarter one year earlier.
Craig Hurvitz, vice president with the Chicago office of Colliers, said that the current big-box industrial vacancy rate of 7.17 percent is about half of the peak rate of 14.32 percent recorded during the first quarter of 2011.
Booming in the south suburbs
The Colliers report pointed to the city’s south suburbs as the most active big-box submarket during the third quarter. According to Hurvitz, the vacancy rate in this slice of the market dropped to 13.01 percent by the end of the third quarter. That, of course, is higher than the vacancy rate for the entire market, but it’s far lower than the 27.50 percent vacancy rate that this part of the market saw in the second quarter of this year.
What’s behind such a big drop? According to the Colliers report, the south suburban market saw three new leases in big-box buildings totaling 413,235 square feet. The largest of these leases involved Warehouse Specialists, which expanded by 212,055 square feet at 21700 Mark Collins Drive in Sauk Village. In the same building, Jacobson Companies leased 156,000 square feet during the third quarter.
The vacancy rate in the Southeastern Wisconsin market is especially impressive, falling to a miniscule 1.98 percent during the third quarter. Colliers said that two of the three vacancies in big-box facilities in this submarket were leased in the quarter. The larger of the leases involved snow blower and lawn tractor maker Ariens Company, which leased the 601,491-square-foot spec building recently completed in the First Park 94 business park.
Not all vacancy rates fell
The impressive big-box activity in the quarter doesn’t mean that all submarkets saw their vacancy rates fall. Consider the I-88 corridor. Two vacant spec projects totaling 827,193 square feet were completed during this quarter. That pushed the vacancy rate up by 234 basis points here to 7.45 percent.
The low vacancy rates are good for owners. But they are a challenge for users looking for large chunks of industrial space in the Chicago market. In the Colliers report, Hurvitz said that there are simply few options for such users.
“Users looking for big-box spaces 500,000 square feet or larger only have four existing options throughout the Chicago industrial market,” Hurvitz wrote. “There are currently no vacancies 750,000 square feet or larger.”
There were just 12 more vacancies at the end of the third quarter in big-box facilities of 300,000 to 500,000 square feet, Colliers reported.
There is some hope, though, for larger users. Hurvitz wrote that several projects are now underway or planned that will bring larger facilities to the industrial market here. The biggest spec big-box facility now under construction is the 787,499-square-foot building being developed by Panattoni Development Company at 1101 W. Airport Road in Romeoville.
Colliers reported that seven big-box construction projects totaling 3.3 million square feet were completed during the third quarter. Five of these were built on a spec basis. Two of these buildings were quickly leased by electronics company LG and MOM Brands. The remaining three spec projects were delivered vacant.
Developers began construction of eight more big-box projects during the quarter. That brings the total number of ongoing projects in this sector to 21. This equals 13.3 million square feet of big-box construction projects underway, of which 11 are being built on a spec basis. The spec portion of the construction represents 42.8 percent of the activity.
The remaining 10 projects, consisting of 7.6 million square feet, are build-to-suit projects or building additions.