Industrial demand is accelerating throughout most U.S. markets, but Chicago could soon become a real standout, as developers satisfy the demand for giant infill properties.
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Until recently, new logistics and distribution warehouses in Chicago tended to be on the small side, as developers sought out available land parcels from which tenants could fulfill last-mile deliveries. But several huge facilities were either recently completed, or are now underway, and they represent the city’s future, according to Cushman & Wakefield.
“We are seeing more and more tenants looking for 1M SF spaces within the city, and we’ve never seen that before, at least in the 20-plus years I’ve been doing this,” Cushman & Wakefield Executive Director Larry Goldwasser said.
A joint venture between MAT Limited Partnership and institutional investors advised by J.P. Morgan Asset Management finished in 2018. Marina Crossings, a 633K SF spec facility at 2075 West 43rd St. on Chicago's South Side, is the city’s largest spec in more than 100 years, and is nearly filled up.
Hilco Redevelopment Partners last summer got the green light to eclipse that record with a 1M SF spec, dubbed Exchange 55, on the site of the former Crawford Power Plant at 2501 South Pulaski Road, a location that requires a lengthy environmental cleanup.
Many other Chicago sites suitable for 1M SF projects also have similar challenges, which partly explains why so little development of this kind has happened in the city, and why it will take several years to ramp up, even with the intense demand from e-commerce firms, 3PLs and food-related companies, Goldwasser said.
“This year, I don’t think we will see another, but there will be more 1M SF buildings as developers find sites. Developers want to build them, and tenants want to move in," he said. "The city is underdeveloped, so it’s playing catch-up.”
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Barriers to new construction are much lower outside the city, and the intensifying demand led to record-breaking activity across the region in 2019, according to Cushman & Wakefield’s latest report. New Chicagoland construction deliveries soared to 19.8M SF last year, a 70% boost over 2018, while leasing transactions totaled 34.8M SF, a 12.3% increase over 2018. That sent the vacancy rate down 60 basis points to 4.9%, a 19-year record low.
There was also an increase in big leases overall, Cushman & Wakefield found, with 10 new deals of more than 500K SF signed in 2019, totaling 7.5M SF, up from seven totaling 5.5M SF the previous year.
As the national industrial market continues its expected rise in 2020, the Chicago region will grow along with it, Goldwasser added.
“We’re an intermodal hub, and we’re fed by both East and West Coast ports, so demand in Chicago will remain steady and strong,” he said.
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