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Chicago Industrial Market Not Showing Any Weakness

It is hard to find any weak spots in the Chicago region’s 1.1B SF industrial market. New construction continues to surge, and the market recorded its 19th consecutive quarter with at least 35 buildings totaling more than 10M SF under construction, according to Avison Young’s first-quarter report.

10411 80th Ave. in Pleasant Prairie, Wis.

Builders have 19.3M SF underway, primarily in the Interstate 80, Interstate 55 and Southern Wisconsin corridors. This volume represents a 57% increase from last year’s first quarter.

Despite the significant amount of construction in the pipeline, the overall market vacancy rate for the Chicago market dropped 20 basis points from the previous quarter to 5.9%, and experts believe the positive momentum will likely continue.

“The market is being driven by demand from companies expanding or realigning their distribution and light manufacturing networks, as well as from the growing e-commerce sector,” Avison Young principal Chris Lydon said.

Southern Wisconsin is the region’s newest submarket, with much of its inventory less than five years old, and after another strong year of leasing activity, developers there show a lot of confidence. More than 440K SF was added during the quarter, increasing the vacancy rate 140 basis points to 7.9%, and keeping the submarket’s net absorption to a relatively neutral -35K SF. Fresenius Kabi’s lease of 590K SF in Pleasant Prairie, the largest in the Chicago region, helped offset the impact of new construction.

Developers have 3.8M SF under construction in the counties just north of the Illinois border, almost 20% of the Chicago region’s total pipeline. Southern Wisconsin boasts the largest building under construction in the region, a 1M SF speculative project being developed by Darwin Realty and Development at 77th Avenue in Kenosha.


During the first quarter, industrial tenants in the Chicago market signed 242 leases, totaling 7.2M SF, a 13% decrease from the previous quarter. The areas with the highest leasing activity were the I-80 corridor, the I-55 corridor and the O’Hare submarket, which accounted for 3.1M SF and 43% of all first-quarter leasing activity.

The I-80 corridor, which has a lot of national distributors in big-box distribution buildings, recently lagged behind other submarkets like O’Hare or I-55 when it comes to leasing activity. But in the first quarter, it had a bit of a turnaround. Vacancy dropped 110 basis point to 10.9%. Other active submarkets included South Chicago, where vacancy dropped 90 basis points to 4.3%, and the Interstate 90 East corridor, which dropped 70 basis points to 3%. 

Avison Young believes sale-leasebacks will continue to drive investment activity in the industrial sector, as these transactions provide stable cash flow for investors and opportunities for businesses to monetize their real estate assets. One notable sale-leaseback this quarter was 10411 80th Ave. in Pleasant Prairie, Wisconsin, which sold for $16M or $81.88/SF. The 195K SF property was delivered in January, and Doheny’s, a swimming pool supply business, sold the building to STAG Industrial and leased the site on a long-term basis.