JLL Report: Chicago's Industrial Boom and Leasing Conundrum
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Episode Transcript:
Today we're delving into Chicago's industrial sector, an area that has experienced a record number of deliveries in the third quarter, signifying both strength and potential concerns.
During Quarter 3, developers in Chicago brought forth a whopping 12.8 million square feet of industrial space, marking the highest quarterly volume since the first quarter of 1999 when the number was even more astounding at 15 million square feet, according to a report by JLL. Notably, a significant 94% of this delivery, approximately 11.9 million square feet, was speculative in nature.
Dominic Carbonari, a seasoned industrial CRE professional with 22 years of experience in Chicago, expressed the magnitude of this delivery, labeling it as massive and the largest he has seen in his career.
However, despite this seemingly positive surge in deliveries, other industrial metrics paint a less optimistic picture. Quarterly leasing activity dropped to 4.7 million square feet, less than half of the second quarter's 9.9 million square feet. George Cutro, JLL's Director of Industrial Research, highlighted that the last time leasing activity fell below 5 million square feet was in the first quarter of 2017, painting a contrasting narrative to the current landscape.
Of particular note is the absence of new signings in the big-box segment, a stark reversal from the initial pandemic period when such spaces were in high demand due to the e-commerce boom. These big-box spaces, usually exceeding 200,000 square feet, cater to vast warehouses or distribution centers. The lack of new leases in this category led to weaker overall demand, reflecting a broader market trend.
Chicago's industrial vacancy rate also saw an increase from the previous quarter, climbing to 3.8% from 3.05%. This escalation was attributed to the considerable volume of newly delivered space rather than companies relinquishing existing space.
Nonetheless, major players continue to invest in Chicago's industrial sector, as shown by Blackstone's recent acquisition of four industrial properties near O’Hare International Airport from CenterPoint Properties for almost $137 million, as reported by The Real Deal.
Carbonari stressed that although demand isn't at the same levels as in previous quarters, it remains healthy and robust. He highlighted that manufacturing companies still show interest in occupying big-box buildings and suggested that the market could benefit from increased supply in this segment.
This is Tyler Cauble, Signing off