Demand For Huge New Industrial Buildings Hitting Historic Highs
The return of big footprint users to the Chicago market in 2019 led to record-setting absorption, a good sign for the investors and builders that broke ground on a new round of big-box facilities over the past few months. Development of such precast warehouses and distribution centers, ones with more than 200K SF and ceilings higher than 28 feet, was once concentrated in just a few areas such as Interstate 80 and I-55, but construction has spread to the majority of the region's submarkets, including Chicago, according to a just-released report on the sector by Colliers International.
Tenants signed 20.8M SF of new leases and lease expansions during 2019 in these large, modern buildings, a record for the business cycle. That led to the net absorption of 17.4M SF of big-box space throughout the year, eclipsing the 2016 record of 16.1M SF. The activity also pushed down the vacancy rate by 54 basis points over the year to 8.53%, the lowest it has been in almost three years.
"The record absorption and new leasing volume recorded would have pushed the vacancy rate down even further, but developers delivered 40 new big box buildings totaling 17.5M SF during 2019, the most since 2017 when 20M SF of big box product was delivered," according to Colliers.
The majority of that new space was done on a speculative basis, and about one-third of that was leased by the end of the year, leaving 7.6M SF of new vacant spec space on the market.
The need among big retailers to keep expanding their distribution operations drove much of the big-box activity. Amazon signed the largest lease in Q4, for just over 1M SF at 23714 West Amoco Road in Channahon, Illinois, followed by Crate & Barrel's 646K SF at Taylor Road and Southcreek Parkway in Romeoville, according to Colliers.
"Four new leases greater than 800K SF were signed during the year, two of which were greater than 1M SF," Colliers said. "This is a significant change from 2018, when no new leases greater than 800M SF were signed."
Target also has a pre-lease agreement to occupy the new 1M SF spec underway by Hilco Redevelopment Partners on the site of the former Crawford Power Plant at 3501 South Pulaski Road on Chicago's Southwest Side, according to the Colliers report.
Distribution projects of this size within the city were unknown until recently, and the Target deal would signal that demand exists for massive Chicago specs.
The chief barrier to Chicago buildings of this size was a lack of available sites. But as more locations such as the Crawford Power Plant become available and undergo the necessary environmental cleanup, Colliers expects developers to launch other big-box facilities.
Meridian Design Build broke ground late last year on a 359K SF multi-tenant industrial spec building for NorthPoint Development at 12144 South Ave. O on the Southeast Side. The project will have 36-foot clear ceilings, and be the first building in NorthPoint Development’s 200-acre Avenue O Industrial Park, a new 2.3M SF master-planned development on the former Republic Steel mill site. The new development is just a few miles from the nearby Ford Motors Chicago Assembly Plant and is adjacent to the 1.6M SF Ford industrial park acquired by NorthPoint in 2017.