By Adam Haefner, Avison Young
The Chicago industrial market continues to move at full speed at mid-year 2021, with strong tenant demand keeping vacancy around 6 percent, despite 64.7 million square feet of new construction added since 2018.
At this stage in the pandemic recovery, large corporate healthcare, retail, logistics and e-commerce businesses continue to drive much of the leasing activity, which totaled 27.5 million square feet near the mid-point of 2021. Companies such as Wayfair, which is building a 1.2 million-square-foot distribution facility in the I-55 Corridor, are joining the ranks of Walmart, Target, Amazon, Home Depot and others that are expanding their industrial space in the Chicago market to keep pace with soaring demand.
Adam Haefner, Avison Young
There are also many small to mid-sized industrial businesses that are increasing their output and expanding their space after seeing slowdowns due to the pandemic.
While the industrial sector is navigating some supply chain disruption and fluctuations in construction materials costs, those headwinds are not enough to slow market activity. Given the boost in consumer and business activity from the vaccine rollout and subsequent reduction in the state’s pandemic mitigation measures, demand for industrial space should be strong for the foreseeable future.
Avison Young research showed 610 industrial leases were completed in 2021 by mid-year. This follows a strong 2020 when there were 1,234 leases completed totaling 56.6 million square feet. Tenant demand is spread throughout the big box submarkets, such as the I-80 and I-55 corridors, as well as infill urban areas, where developers are scouring the neighborhoods looking for sites for last-mile warehouses.
Three of the largest leases signed during the second quarter of 2021 were in the I-80 Corridor, including Lion Electric’s 906,500-square-foot lease in Joliet; Kenco Logistics Services’ 849,691-square-foot lease in Minooka; and Michaels Stores’ 693,185-square-foot lease in New Lenox.
The strong tenant demand is keeping developers moving at a feverish pace. In mid-June there were 17 properties delivered to the market totaling 7.3 million square feet. There are 67 additional properties totaling 23.5 million square feet under development, including several large speculative projects.
Among the notable completions in 2021 were build-to-suits for Medline (1.4 million square feet in Lake County) and Crate & Barrel (646,380 square feet in the I-55 Corridor).
Additionally, a 472,216-square-foot building across the border in Southern Wisconsin has been leased to Visual Pak. In the I-57 Corridor, a 1 million-square-foot build-to-suit for Amazon will further expand the e-commerce giant’s footprint in the Chicago market.
Reaching Northwest Indiana
While Chicago’s big box submarkets drive significant activity, there is strong leasing and development activity occurring throughout the market, with some shifting to submarkets around the perimeter. Just as the Southeastern Wisconsin market emerged as a construction hot spot in recent years, there are signs that Northwest Indiana is primed for industrial development and seeing the beginning of a growth spurt.
Northwest Indiana is comprised of 53.1 million square feet of industrial space and benefits from its proximity to Chicago’s main industrial submarkets, along with a strong infrastructure and transportation network. Demand for space is being seen from smaller to large Fortune 500 companies that are expanding from within the market or newly entering the market. Businesses in the manufacturing, warehousing, e-commerce and food sectors are particularly active in seeking space.
The market has had 139,882 square feet of leasing activity this year and, following several quarters with little new construction, now has 314,838 square feet under construction.
One notable new development is Northwest Indiana Crossings, a 279,348-square-foot building at 9401 Georgia St. in Merrillville that is anchored by Midwest Truck & Auto. The project is being developed by Crow Holdings, which recently broke ground on the 261,300-square-foot Northwest Indiana Crossings II building in Merrillville. Avison Young is the leasing agent on both developments.
Heading toward year-end, there appears to be no slowdown in sight for Chicago’s industrial market.
As businesses related to consumer goods, e-commerce, logistics, light manufacturing and food-related industries continue to expand and require additional space, industrial activity should continue at a strong pace into 2022.
Adam Haefner is principal of industrial services with Avison Young. This article originally appeared in the June 2021 issue of Heartland Real Estate Business magazine.