NAI Hiffman is pleased to present the Second Quarter 2018 Market Peek, a first look at the market statistics for the Chicago metropolitan office and industrial real estate markets.
Industrial: Speculative Construction Deliveries Cause Vacancy Increase
Five speculative facilities totaling nearly 3.0 million square feet (msf) delivered during the second quarter, causing an uptick in the overall vacancy rate to 6.15 percent. Two of those deliveries were over 1.0 msf, and both are located in the I-80/Joliet Corridor. A total of 4.8 msf, including 1.8 msf of pre-leased assets, was delivered second quarter, bringing the mid-year total to 7.1 msf, 30.6 percent lower than the 10.3 msf delivered at the same time last year. The largest delivery was a 1.3 msf build-to-suit facility for IKEA located in Joliet.
A total of 12.4 msf remained under development, with 83.9 percent of those projects under construction on a speculative basis. For the first time since the third quarter of 2014, the I-55 Corridor topped the I-80/Joliet Corridor in terms of buildings under construction with 2.2 msf under construction, compared to I-80’s 1.7 msf.
Net absorption totaled nearly 3.0 msf second quarter with companies RJW Transport in Bolingbrook and Woodridge (762,000 sf – in two separate leases), Dart Container in North Aurora (430,000 sf), Uline in Pleasant Prairie (417,000 sf), and Costco in Morris (256,000 sf) all taking occupancy during the quarter.
Office: Suburbs Achieve Strong Quarterly Net Absorption; CBD Vacancy Increases with West Loop Speculative Office Delivery
Only one speculative office project is under construction in the suburbs, which is expected to bring over 43,000 square feet (sf) to the I-55 Corridor submarket. Due to the lack of new construction and deliveries in the suburbs, total overall vacancy continued to decrease 73 basis points, to 18.37 percent in the second quarter. Average asking rents increased for both Class A and Class B office spaces, to $26.90 and $19.16, respectively.
Although leasing activity was down slightly from last quarter, net absorption in the second quarter more than doubled over the previous quarter to nearly 330,000 sf, bringing the year-to-date total net absorption to 490,000 sf. Available space was down slightly in all building classes for the quarter.
The CBD vacancy rate increased 71 basis points over last quarter as the market gave back more than 207,000 sf of space. 151 N Franklin Street delivered 807,000 sf of Class A office space to the West Loop submarket, causing vacancy and availability to increase slightly. Despite the negative absorption witnessed in the second quarter, some large moves dictated these trends, including CNA downsizing from approximately 572,000 sf in the East Loop to 298,000 sf in the West Loop.
Over 4.0 msf of office space is currently under construction in the Central Business District, with most of the construction occurring in the West Loop Submarket. The most notable project is The Old Post Office redevelopment, which will bring roughly 2.7 msf of office to the West Loop when complete. Walgreens has already inked 200,000 sf at the building.