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Industrial Tenants Now Showing Up For Spec Buildings Of All Sizes

12144 South Ave. O, a new spec project by NorthPoint Development on Chicago's southeast side.

Chicago-area industrial developers took a bit of a pause in much of 2018, completing between 2M and 5M SF in each quarter that year and the first half of 2019. But as tenants ready to lease space kept showing up for new buildings in most size ranges, builders have responded by ramping up deliveries, including for speculative projects, to a level not seen in years.

Developers finished 8.8M SF of new product in Q3 '19, the greatest quarterly tally since the current development cycle began in 2013, according to a new report from Colliers International

Of the 27 projects delivered, 15 were built on spec, totaling 4.3M SF.

Going spec has been a good choice in most cases. Despite the massive amount of spec space opening up over the past six years, the vacancy rate for these buildings continues to decline, Colliers found. By the third quarter, it fell to just 29.8%, the lowest it has been this cycle.

"This figure has decreased each of the past 10 quarters, indicating that demand for new speculative warehouse space is outpacing new supply and the market is not being overbuilt," according to the firm.  

Tenants have found smaller buildings especially desirable. Developers delivered 91 spec structures between 100K and 200K SF since 2013, the most of any other size segment, and these buildings, totaling 13.4M SF, are 72% occupied.

Spec buildings between 200K and 300K SF have been the most popular. Tenants occupy 78% of the 10.2M SF delivered in this size range in the past six years.

Most other size ranges have also leased between 71% and 78%, Colliers said. 

Big-boxes are the only exception, but even their record saw recent improvement. Developers completed 11 Chicago-area specs greater than 750K SF since 2013, and last quarter, the amount occupied went from 35% to 56%.  

"The significant change was due to a large whole-building lease being signed in the Interstate 80 Joliet Corridor," the Colliers report stated.