Chicago-area industrial real estate rents rise, vacancies fall – Crain’s Chicago Business

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chicago-area-industrial-real-estate-rents-rise,-vacancies-fall-–-crain’s-chicago-business

If you need to lease industrial space in the Chicago area these days, prepare to pay up.

Local warehouse rents are jumping amid a multiyear boom that’s gaining momentum, as logistics, e-commerce and manufacturing firms keep gobbling up space. Developers are stamping out new buildings as fast as they can but are having a hard time keeping up with demand, partly because of a shortage of building supplies.

“I’ve done this for 27 years, and I’ve never seen anything like this,” said broker Matthew Stauber, executive vice president in the Rosemont office of Colliers International.

The Chicago-area industrial vacancy rate dropped to 6.03% in the third quarter, the lowest rate in more than two decades, according to Colliers. The vacancy rate fell from 6.29% in the second quarter and 6.72% a year earlier.

It’s already a record-breaking year as measured by one key metric: net absorption, or the change in the amount of leased space versus the prior period. Net absorption totaled 32.9 million square feet in the Chicago area in the first three quarters, eclipsing the previous annual record of 26.6 million square feet set in 2016.

Stauber estimates that rents in some markets have jumped as much as 10% in the past six months. Rents typically rise 2% to 3% over an entire year.

“What we are seeing is a phenomenon where landlords are hesitant to commit to terms too far in advance because the rental rates are accelerating at such a rapid pace,” he said.

The third quarter included some big leases, led by Amazon, the biggest consumer of local warehouse space over the past two years. The Seattle-based e-commerce giant leased a 1.2-million-square-foot warehouse in Huntley, about 55 miles northwest of Chicago.

A former Caterpillar campus in Montgomery, about 45 miles southwest of the city, emerged as another hot spot. Tangent Technologies, an Aurora-based plastics company, leased a 1.1-million-square-foot building at the property, now called the Grid at Route 31, while Georgetown, Ky.-based U.S. Medical Glove, signed a lease for about 980,000 square feet there. DSV, a Danish logistics company, leased 700,000 square feet at the property.

Developers are going full tilt, though demand for industrial space continues to outpace supply. They have already broken the record set for construction in 2017, when they completed 24.8 million square feet in the Chicago area. They delivered 27.2 million square feet through the first nine months of 2021, according to Colliers.

But one thing standing in the way of even more development is a shortage of key supplies. Contractors are facing delays of several months on orders of precast concrete panels used for the walls of industrial buildings, roofing materials and loading dock equipment, Stauber said.

“The pace of development is being constrained by a shortage of raw materials,” he said.