Industrial Developers Expected To Accelerate New Construction
The vacancy rate for Chicagoland’s industrial sector sank to 5.5% at the end of 2018, a decade low, and developers seem likely to accelerate the pace of new construction in the coming year, according to Cushman & Wakefield’s 2019 Industrial Outlook report.
New records for leasing activity and development became commonplace in the past few years, as the explosion of e-commerce intensified demand for distribution buildings. But the market is undergoing some significant shifts. Instead of breaking ground on giant centers in peripheral submarkets, many developers now concentrate on midsize structures in dense, infill areas.
“To make quick deliveries, companies now need smaller warehouses in infill locations, and the demand for these so-called ‘last-mile’ distribution facilities is driving the mid-sized sector to be more active than it’s ever been,” Cushman & Wakefield’s Chicago Industrial Group Leader David Friedland said.
Last year had 50% more leasing activity than 2017, and 46% of the total activity was for midsize buildings between 50K SF and 300K SF, with 33% occurring in larger, big-box centers, Cushman & Wakefield’s data shows.
And because distributors need facilities throughout densely populated areas, this latest wave of development is taking place over a wide geographic area, not just several select submarkets, Friedland said.
Recent deals for midsize warehouses dedicated to e-commerce have taken place in affluent towns like west suburban Lisle, and Gary, Indiana, a city that has struggled with poverty and disinvestment for decades, but just secured an Amazon distribution facility.
Distributors serving Chicago residents will continue demanding modern spaces in the northern half of the I-55 submarket, where developers swept away many obsolete industrial structures and built new buildings of up to 1M SF, Friedland said.
Developers completed 11.6M SF in 2018, and Cushman & Wakefield predicts low vacancy, coupled with a rise in average rental rates to $5.37/SF, means 2019 will be even more active. Builders have about 15.6M SF underway, a year-over-year increase of 50%.
“The demand for mid-sized space will continue, and as overall demand still outweighs the supply, investors view the industrial market as sustainable, so we don’t see a slowdown coming,” Friedland said.