Quarterly Industrial Market Update

Lowest vacancy rate in over two decades

Chicago’s industrial market is still as hot as ever, with an astounding 40.3 million of direct net SF positively absorbed into it year over year according to CoStar. This level of demand formation is almost double the high set for Chicago in 2004 (24 million SF) and almost twice the average levels seen over the past five years. Leasing activity metro wide took a dip so far into 2022 from the highs of 2021, but at the same time, leasing activity is still remarkably strong, adding 65 million SF inked deals to the market’s ledger year over year.

A driving force behind Chicago’s industrial sector is its centralized location and unparalleled rail and highway connectivity as the only U.S. city to contain six Class 1 railroads. These geographic and infrastructural advantages help Chicago play a critical role in the many supply chains for retail, transportation, and manufacturing companies around the globe, helping it consistently maintain its ranking in the top five markets nationally for combined import and export activity. Tenants within these three industries — manufacturing (38%), retail (13%), and logistics (12%) — account for the bulk of Chicago’s leasing activity and positive absorption over the past year.

A robust construction schedule is in place to keep pace with market demand. Approximately 20.7 million SF of new space materialized over the past year, with another 38.1 million SF of industrial space currently under construction in Chicago. With demand growth steadily outpacing new supply, vacancy within Chicago’s industrial market declined by -1.6% over the past 12 months to post the lowest vacancy rate in over two decades at 4.3%.

Buoyed by record levels of new demand and tight fundamentals, average industrial market rents are still rapidly rising in Chicago. Although industrial rents increased by 9.2% over the past year, Chicago slightly lags behind the national average rental increase of 11.9%. The specialized and logistics segments saw the strongest rent growth in Chicago over the past year at 9.6% and 9.7%, respectively, while the flex segment reported gains of 4.1% over the same time.

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