https://www.chicagobusiness.com/comm...ievable-demand
November 12, 2019 12:25 PM |updated a day ago
Industrial vacancy rate keeps falling amid 'unbelievable' demand
Fueled largely by the e-commerce boom, the local rate dropped to 6.15 percent in the third quarter, its lowest since the beginning of 2001.
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It’s getting hard to find new superlatives to describe the strength of the market for warehouse space in the Chicago area.
Fueled largely by the e-commerce boom, the local industrial vacancy rate dropped to 6.15 percent in the third quarter, down from 6.25 percent in the second quarter and 6.4 percent a year earlier, according to Colliers International. The local vacancy rate hasn’t been that low since the beginning of 2001.
“The demand has just been unbelievable,” said broker Fred Regnery, principal in Colliers’ Rosemont office.
It’s unbelievable because of the strong economy, which has boosted sales of goods manufactured and stored in industrial buildings. ...
The primary measure of demand, net absorption—or the change in the amount of leased space versus the prior period—totaled 9.2 million square feet in the third quarter in the Chicago market, the most industrial space here absorbed in a quarter since 2005, according to Colliers. Net absorption has been positive for 28 quarters in a row.
To stay ahead of demand, developers have been building warehouses as fast as they can, often on speculation, or without signing a tenant in advance. In far-flung suburbs, where land is plentiful, they’re putting up massive concrete boxes, some exceeding a million square feet (nearly 23 acres). In Plainfield, Atlanta-based developer Seefried Industrial Properties is overseeing the biggest current project in the area, a 1.5 million-square-foot warehouse for British liquor company Diageo.
Developers have a reputation for overshooting the market, but they haven’t yet in Chicago. They’re expected to complete 23.7 million square feet here this year, just shy of the 24.8 million square feet completed in 2017, a high for the current boom, according to Colliers.
Yet demand is keeping up with supply. Colliers forecasts that Chicago-area absorption will total 22.5 million square feet this year. That would be the second-highest amount absorbed in the current cycle since 2016, when absorption totaled 26.6 million square feet.
President Donald Trump’s trade war with China has hurt U.S. manufacturers and dampened business investment but has yet to trickle down into the Chicago industrial property market, Regnery said.
“The underlying fundamentals have been so good,” he said. “The tariffs haven’t been big enough to change anybody’s plan.”
Long overshadowed by sexier sectors like office buildings and hotels, the industrial real estate market has acquired a halo over the past few years as more investors have viewed it as an e-commerce real estate bet.
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