NAI Hiffman is pleased to present the Fourth Quarter 2018 Market Peek, a first look at the market statistics for the Chicago metropolitan office and industrial real estate markets.
Industrial: Occupier Demand Remains Strong at Year End
Following last quarter’s record of 32 facilities breaking ground in the Chicago market, 21 buildings broke ground in the fourth quarter totaling nearly 7.0 million square feet (msf). At year-end 2018, a total of 20.4 msf remained under construction with 15.8 msf to be built on a speculative basis. The overall vacancy rate continued to decline, however, to 5.87%, despite delivering 3.0 msf of speculative product over the last three months of the year.
Net absorption totaled nearly 3.4 msf fourth quarter, with companies Handi Foil in Antioch (a 559,000-sf BTS), Expeditors International in Streamwood (424,000 sf), Kane is Abel in Lockport (372,000 sf), and Old World Industries in Bolingbrook (354,000 sf) all taking occupancy during the quarter. However, year-end absorption totaled 14.6 msf, 21.7% lower than the 18.6 msf reported at the end of 2017. Confidence in the industrial sector remains high, however, developers may slow speculative construction starts going into 2019.
Office: Suburbs and CBD Office Markets Close Out 2018 with Strong New Leasing Activity
Due to increased market absorption, total overall vacancy in the suburbs decreased 38 basis points, to 18.2% in the fourth quarter. Notwithstanding this absorption, average asking rents among all classes of space decreased. Of greatest significance, Class A rates fell to $26.49 per square foot from a rate of $27.14 in the third quarter of 2018.
Net absorption increased to 220,389 square feet in the fourth quarter, bringing the year-to-date total net absorption to 501,131 square feet. Leasing activity also outpaced the previous quarter by over 300,000 square feet. Total available space decreased 86 basis points from the previous quarter, to 23.1%. It is noteworthy to point out that Windham Lakes delivered 43,227 square feet to the I-55 Corridor in the fourth quarter, marking the first suburban speculative project since the economic recovery began.
Overall vacancy in the Central Business District increased 12 basis points over the third quarter, to measure 13.1%. Negative absorption continued into the fourth quarter, as 258,533 square feet returned to the market, however, leasing activity increased nearly 1.5 msf over the previous quarter. Class A asking rents increased to $43.08 in the fourth quarter, from $42.39 in the previous quarter.
Nearly 5.2 msf of office space is under construction downtown, with most of the activity continuing to occur in the West Loop submarket. One notable construction project, 110 North Wacker, is over 45% pre-leased and will bring roughly 1.5 msf to the West Loop when complete. In the Central Loop, 145 South Wells will deliver 300,000 square feet of office space to the market with an expected completion date of third quarter 2019.