Fears of a possible recession or continual trade wars didn't stop the Chicago region's industrial users from increasing their leasing activity. Tenants leased another 8.7M SF in the second quarter, a 20% increase from the previous quarter, according to Avison Young researchers.

That is much slower than last year, when tenants leased on average 12M SF per quarter. Still, rents keep increasing, and institutional capital continues pouring in to finance new construction.

Developers now have 19.3M SF underway, more than double the amount in the spring of 2018, with more than 70% of the current pipeline being built on a speculative basis.

“Institutional investors remain bullish on the Chicago market and the O’Hare submarket in particular,” Avison Young principal Chris Lydon said. “As long as this institutional demand is present, the construction cycle will continue at a steady pace."

The O'Hare submarket, in particular, attracts investors due to its shortage of land and robust demand, Lydon said.

Prices in the past six quarters grew significantly, reaching levels only seen once before during a rare spike in 2015. In the second quarter, O'Hare prices hit $75 per square foot, or more than 50% higher than the first quarter of 2018, according to Avison Young.

Furthermore, more than 60% of the sales in the O’Hare submarket over the last five years have been investor transactions, forcing up prices as user/owners compete with large investment players.

The largest transaction of the quarter in O'Hare was SEDCO Capital's purchase of 5959 West Howard St. in Niles. The Saudi Arabia-based REIT paid Scannell Properties $84M, or about $275 per SF, for the 306K SF property, which was built in 2015 as a build-to-suit for FedEx.

Avison Young also said the majority of Class-A assets near O’Hare are now controlled by institutional owners with long-term hold strategies, so it expects other potential buyers to now focus on Class-B and Class-C assets.