Hiffman Releases Q2 2024 Construction Pipeline Report

Cooling Growth during Second Quarter 2024

The industrial market of Chicagoland continued to exhibit cooling growth in its industrial construction sector during the second quarter. Developers added 1.3 million square feet of newly constructed industrial buildings in the second quarter of 2024. Since the first quarter of 2017, this is the smallest amount to be brought to market since the second quarter of 2020 when 2.1 million square feet were completed. Furthermore, it is significant to observe that this new record low comes after the record high seen just two quarters ago in the fourth quarter of 2023 when 13.1 million square feet were delivered. However, it should be remembered that on average, a total of 5.8 million square feet have been delivered per quarter since the first quarter of 2017. With a further 6.6 million square feet projected to be completed in the third quarter of 2024 alone, it appears the Chicagoland market is simply on track to returning to pre-pandemic numbers following a market reset.

When it comes to the number of deliveries in the second quarter, speculative buildings outshined build-to-suit buildings as developers wrap up developments they started during 2023. Of the 1.3 million square feet completed in the second quarter, 1.1 million square feet were speculative facilities, with Construction Deliveries by Year Total Deliveries SF Under Construction SF the other 195,000 square feet being one build-to-suit building, which was developed by Park Development Partners at 628 Hoffman Street in Hammond for Meats by Linz. The largest building to be completed during the second quarter of 2024 was Velocis’ 543,603 square-foot speculative warehouse located at 1401 N. Kirk Road in Batavia.

Year-to-date, a total of 9.6 million square feet of new industrial product has been delivered in Chicagoland. Of this amount, a total of 7.6 million square feet represents speculative buildings with the remaining 2.0 million square feet being build-to-suit buildings. As of the second half of 2024, the leading submarket for construction deliveries is I-80/Joliet, leading the market with a total of 1.8 million square feet delivered so far. By the end of 2024, an additional 8.2 million square feet of construction is anticipated to be completed. In 2025, nearly 6.0 million square feet is expected to be finished. With more projects set to break ground in the latter half of 2024, this number is projected to increase.

 

Speculative vs. Build-to-Suit

Because of the pandemic-induced shock to the economy in 2020, consumer spending increasingly shifted to online retailers, creating an e-commerce driven craze for new distribution space. Developers’ confidence skyrocketed with the drop of interest rates to historically low levels, and the result was a rise in speculative construction projects. However, after the surging demand for new industrial product with limited supply and the outbreak of conflicts like the war in Ukraine led to inflationary pressures on the economy, consumers’ stimulus savings began to deplete. The Federal Reserve responded by raising interest rates, leading to a decline in confidence in the industrial real estate sector, particularly in the construction of e-commerce spaces.

The evidence of this is clearly shown in the numbers. Construction starts are down to only eight during the second quarter, with only ten recorded in the first quarter. This result comes after the recent high of 27 construction starts in the fourth quarter of 2022. Build-to-Suit facilities are taking over the market after a few years of speculative dominance. Out of 2.9 million square feet to break ground during the second quarter, 2.2 million are represented by build-to-suits. Much of this amount is from a new 1.2 million square-foot build-to-suit for John Deere located at SWC I-65 & Route 2 in Lowell. This building is a development by Venture One and is expected to be delivered in the summer of 2025.

Despite preference for build-to-suits, some developers have maintained confidence in leasing new speculative buildings. Of note, Bridge Industrial broke ground on a new speculative project in Romeoville consisting of two buildings called Bridge Point I-55 Commerce Center. Building One will be 120,011 square feet and Building Two will be 172,042 square feet, adding up to a grand total of 292,053 square feet set to be brought to the I-55 Corridor in the summer of 2025.

For further information regarding the content of this construction report, please contact:

Nick Schlanger
Director of Research Services
630-691-0600
nschlanger@hiffman.com