Chicago’s vacancy rate is expected to rise in the short term due to the completion of speculative projects initiated in 2022 and 2023, according to CoStar. However, compared to other major U.S. markets, Chicago’s development activity is relatively restrained, with only 1.3% of the market’s total inventory under construction. This is significantly lower than the national average and markets like Phoenix and Dallas-Fort Worth.

The impact of rising interest rates has led to a substantial decrease in industrial construction starts since early 2023. While net deliveries are expected to remain high in the early part of 2024, the volume of new projects completing construction is projected to decline later in the year due to the ongoing reduction in starts.

Despite these challenges, the overall vacancy in Chicago is anticipated to peak at or below the market’s 20-year average. Moreover, it is expected to remain tighter than the national vacancy rate. If U.S. economic growth accelerates in 2025 and new supply additions are minimal, there is potential for industrial rent growth.

The Chicago region’s geographic location has long been a key factor in its significance as a transportation and distribution hub. Its centrality in the United States, make it an ideal location for distribution centers and logistics operations. Here are a few points that highlight Chicago’s importance in this regard:

1. Transportation Infrastructure: The convergence of major highways, including Interstates 90, 94, and 290, facilitates the movement of goods by truck. Additionally, the city’s proximity to major waterways like Lake Michigan and the Chicago River contributes to its accessibility for shipping.
2. Railroad Network: Chicago is unique in being the only U.S. city served by all six Class I North American railroads (BNSF Railway, Canadian National Railway, Canadian Pacific Railway, CSX Transportation, Norfolk Southern Railway, and Union Pacific Railroad). This extensive rail network provides efficient and comprehensive rail access, making it a crucial hub for freight transportation.
3. Air Cargo Connectivity: O’Hare International Airport, one of the busiest airports in the world, enhances Chicago’s status as a transportation hub. The airport serves as a major air cargo gateway, connecting the city to global markets. This facilitates the rapid movement of goods by air, contributing to the efficiency of the overall logistics network.
4. Intermodal Facilities: Chicago’s intermodal facilities, where different modes of transportation (such as rail and truck) converge, play a vital role in the seamless transfer of goods. These facilities enhance the flexibility and efficiency of the supply chain by allowing for smooth transitions between transportation modes.
5. Market Access: Beyond its transportation infrastructure, Chicago’s central location provides businesses with convenient access to a large consumer market. The city serves as a gateway to the broader Midwest and North American markets, making it an attractive location for distribution centers aiming for wide-reaching coverage.
6. Business and Economic Factors: Chicago’s business-friendly environment and economic strength also contribute to its appeal for developers and businesses. The city’s diverse economy and skilled workforce further support the growth of distribution and logistics operations.

In summary, while there may be a temporary increase in vacancy rates, Chicago’s real estate market is expected to stabilize and potentially experience growth in industrial rent by late 2024 or 2025, depending on economic conditions and construction trends. Chicago’s unique location and abundance of logistics solutions will continue to make it attractive to companies in that space. For additional information contact info@tmg-rea.com.