2025’s Chicago industrial market: Stability Amid Strategic Shifts

From “2025’s Chicago industrial market: Stability Amid Strategic Shifts” – RE Journals

Denes Juhasz | December 9, 2025

The Chicago industrial market entered the third quarter of 2025 on solid footing, continuing its transition from the explosive, pandemic-fueled growth of 2021–2023 toward a more measured, efficiency-driven phase. While the pace of expansion has moderated, fundamentals remain strong, underscoring Chicago’s resilience and strategic importance in the national industrial landscape.

2025 Market Performance: A Return to Equilibrium

The third quarter delivered 7.5 million square feet of positive net absorption, a sharp rebound from the 1 million square feet recorded in the second quarter. Year-to-date absorption now totals 10.8 million square feet, surpassing the 8 million square feet achieved during the same period in 2024. Vacancy rates declined 30 basis points quarter-over-quarter to 6.1%, driven by significant tenant move-ins, including RJW Logistics’ occupancy of 1.1 million square feet in Joliet.

Leasing activity totaled 9.7 million square feet last quarter, down from 12.1 million square feet in the prior period, bringing year-to-date leasing volume to 32.7 million square feet. This tapering reflects normalization of the market after several unprecedented years of expansion driven by e-commerce growth, increased inventory storage and domestic supply chain repositioning.

The I-80/Joliet Corridor led all submarkets with 1.6 million square feet of new leasing activity, reinforcing its position as a regional logistics hub. The largest lease of the quarter occurred in South Cook, where Peopleworks signed for 757,504 square feet in Matteson. Other notable transactions included Axis Warehouse’s 446,878-square-foot lease in Fox Valley and Estes Forwarding Worldwide’s 420,520-square-foot deal in Joliet.

Caution Exercised in Construction, New Supply

Development activity slowed markedly last quarter, reflecting a cautious approach by developers amid rising material costs and financing challenges. Completions totaled just 575,466 square feet, down from 3.5 million square feet in the first quarter and 3.3 million square feet in the second quarter. Year-to-date deliveries stand at 7.4 million square feet, a significant drop from 11.6 million square feet during the same period in 2024.

However, 12.1 million square feet remains under construction, with 53.5% speculative and 46.5% build-to-suit product. Speculative developments now represent a majority, reversing a build-to-suit trend that began in 2023 and continued until the second quarter of this year. This shift signals developer confidence, particularly for projects with superior transportation access, workforce proximity and power availability.

Capital Markets: Price Discovery and Patience

Industrial investment sales in the Chicago metropolitan area totaled $571.1 million last quarter, down 33.6% from the prior period due to the absence of major portfolio transactions. Year-to-date, however, sales volume reached $1.95 billion across 19.6 million square feet, marking a 19% increase over 2024. The average price per square foot fell 12.7% to $90.12, reflecting cautious investor sentiment amid elevated interest rates and tariff-related uncertainties.

Chicago’s Advantage in Industrial

Chicago benefits from advantages few logistics markets can replicate, including its centralized location that enables two-day shipping to most of the population, multiple Class 1 railroads, numerous interstate systems and intermodal facilities, abundant skilled labor and moderate climate risk. With third-party logistics providers and e-commerce operators reemerging as key demand drivers in 2025, Chicago is well positioned for the future. Furthermore, global trade tensions and supply chain disruptions are accelerating reshoring activity, boosting expectations for domestic manufacturing growth. Chicago’s reputation as a manufacturing powerhouse makes it a likely candidate for companies seeking to increase domestic production.

2026 Outlook: What Comes Next for Chicago’s Industrial Market

At NAI Hiffman, we expect 2026 to see a reallocation of capital and tenant priorities. Specifically, we anticipate the following trends:

1. Deal size shrinks but volume grows. While 2021-2023 rewarded 1 million-square-foot blocks, 2026 will reward 200,000- to 600,000-square-foot configurations that meet the demand for smaller, more flexible facilities that can support last-mile delivery as well as nearshoring of production. The average new lease size totaled 84,000 square feet in 2025, so smaller buildings are ideal for tenants seeking to lease spaces under 100,000 square feet.
2. Selective spec development will rise. The resurgence of speculative projects indicates confidence in long-term demand fundamentals. Developers are betting on sustained interest from logistics providers and manufacturers, particularly as reshoring initiatives gain momentum. New projects will feature higher clear heights to meet ongoing e-commerce tenant needs and increased power availability to meet potential manufacturing demand. In addition, more trailer parking will be essential. Industrial outdoor storage lease deals have been increasing often due to the need for more trailer parking.
3. Manufacturing demand will accelerate. Reshoring initiatives and geopolitical tension will make Chicago attractive for production due to the region’s extensive infrastructure, labor availability and access to suppliers And, as power becomes a top factor in site selection, Chicago has a distinct advantage. With the rise in AI adoption and automation, Chicago and Illinois will attract manufacturers due in part to the state’s ranking as No. 2 in the nation for power grid reliability, according to U.S. News & World Report. Illinois’ energy capabilities, including its generation of more nuclear energy than all other states, will keep prices down for many manufacturers.
4. Capital markets will thaw. The year-to-date increase in transaction volume underscores investor confidence in industrial assets as a resilient asset class. The dip in average price per square foot reflects recalibrated valuations in response to higher borrowing costs yet demand for stabilized multitenant properties remains robust. Institutional investors and private REITs continue to view Chicago as a safe haven for capital deployment given its liquidity, scale and strong tenant base. Looking ahead, capital inflows are expected to rise as interest rates stabilize and economic conditions improve.

As the most recent data shows, Chicago’s industrial market has proven resilient and adaptable. While the frenetic pace of prior years has moderated, the region’s enduring strengths — strategic location, infrastructure depth and economic diversity — ensure its continued prominence in the national industrial landscape. Stakeholders should anticipate a period of steady, sustainable growth characterized by selective development, strategic leasing and cautious optimism in capital markets.

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About NAI Hiffman:

NAI Hiffman is one of the largest independent commercial real estate services firms in the US, with a primary focus on metropolitan Chicago, and part of the NAI Global network. We provide institutional and private leasing, property management, tenant representation, capital markets, project services, research, and marketing services for owners and occupiers of commercial real estate. To meet our clients’ growing needs outside of our exclusive NAI Hiffman territory, we launched Hiffman National, our dedicated property solutions division, which provides property management, project services, and property accounting services across the country. NAI Hiffman | Hiffman National is an award winning company headquartered in suburban Chicago, with more than 275 employees strategically located throughout North America.

About Hiffman National:

Hiffman National is one of the US’s largest independent commercial real estate property management firms, providing institutional and private clients exceptional customized solutions for property management, project management, property accounting, lease administration, marketing, and research. The firm’s comprehensive property management platform and attentive approach to service contribute to successful life-long relationships and client satisfaction. As a nationally bestowed Top Workplace, and recognized CRE award winner, Hiffman National is headquartered in suburban Chicago, with more than 275 employees nationally and an additional six hub locations and 25 satellite offices across North America.