Chicago's Long Big-Box Warehouse Boom Hits A Wall
Chicago’s typically reliable big-box industrial market suffered its first setback in eight years last quarter, with net absorption turning negative as vacated older warehouses hit the market and expansion stalled.
The city's big-box spaces, defined as modern distribution facilities 200K SF and larger with clear heights of at least 28 feet, saw vacancy spike in the first quarter. The vacancy rate jumped 78 basis points to 9.44%, and an influx of newly vacant second-generation space is mostly to blame, according to a Colliers Q1 report.
The flood of vacated space hitting the market turned net absorption negative for the first time since 2017, to the tune of 1.2M SF. That number marks a 4.4M SF swing from the positive 3.2M SF of absorption in Q4, according to Colliers.
“With the economy right now, everyone is in a wait-and-see mode, and honestly, I don't know who's ready to be expanding into such a large space,” said Diana Perez, director of industrial research at Colliers.
Chicago’s big-box vacancy rate is still better than the national average for the asset type, which sat at 11% as of a year-end 2024 Colliers report. Nationally, Colliers expects big-box vacancy to peak and begin to decline again this year as new supply falls in line with levels of demand and the market adjusts.
In Chicago, the Q1 vacancy rate was largely driven by two major exits: Home Depot vacated its 990K SF facility in Joliet, and Wilton Industries moved out of an 825K SF building at 1010 W. Taylor Road in Romeoville. Home Depot is aiming to sublease the warehouse as it looks to cut costs and exit space leased during the pandemic boom, The Wall Street Journal reported.
Their departures reflect a shift among industrial users reassessing space needs after rapid expansion in 2020 and 2021.
Perez said a lot of the spaces tenants left in Q1 had been available for a while as tenants planned their exits. Those aren’t counted in vacancy figures until tenants officially leave the space. Since large spaces take a particularly long time to vacate, much of that square footage got counted this past quarter.
As for the remainder of the year, rental rates on some available second-generation space could be more attractive to prospective tenants than paying premiums for new construction, Perez said. Tenants may also be able to negotiate more favorable terms for tenant improvements or even free rent at some empty buildings.
There was still some activity in the quarter, with tenants signing 14 new leases and lease expansions, including two leases of more than 500K SF. The largest was RJW Logistics Group’s 977K SF facility lease at 2903 Schweitzer Road in Joliet. Uline also signed for 502K SF in Wisconsin, still within the Chicago industrial metro area.
“We're seeing a lot of renewals,” Perez said. “The good thing is we're not seeing a lot of contractions, but we're not seeing expansions either. The thing about the vacancy rate is it's going to move very slowly.”
As a result, those looking for new builds won’t find much on the speculative side as construction continues to lag.
Just 13 big-box projects were in the works as of Q1, totaling 8.2M SF. Ten of them are built-to-suit developments comprising 6.3M SF, while the other three are speculative projects totaling 1.9M SF.
During the first quarter, developers completed five big-box construction projects totaling 1.3M SF. Three were build-to-suit buildings and two were speculative developments.
“I think it's going to be very slow for big-box industrial,” Perez said. “There’s uncertainty in the economy, and I think a lot of people are focusing on smaller spaces.”
