NAI Hiffman is pleased to present the Third Quarter 2018 Market Peek, a first look at the market statistics for the Chicago metropolitan office and industrial real estate markets.
Industrial: Construction Starts Explode in the Third Quarter
Thirty-two facilities totaling nearly 9.2 million square feet (msf) broke ground during the third quarter, with just 17.8 percent of those projects to be built on a build-to-suit basis. Of these third quarter starts, more than 7.5 million square feet of speculative development will be delivered over the next year. With a total of more than 15.3 msf scheduled for completion by the end of 2019, overall vacancy is expected to increase, provided those projects are not pre-leased prior to completion.
Net absorption totaled nearly 3.9 msf third quarter with companies Frain Industries in West Chicago (an 865,000 sf user sale), Home Depot in Northlake (588,000 sf), Glanbia in Aurora (452,000 sf), and BOX Partners in Elgin (385,000 sf) all taking occupancy during the quarter. However, year-to-date absorption totaled 11.2 msf third quarter, compared to the 13.9 msf reported this time last year, making the occupancy of new speculative development critical to sustaining healthy market fundamentals in the Chicago market.
Office: Suburbs Witness Increase in Vacancy, Availability; CBD Experiences Negative Absorption & Solid New Leasing Activity
Total overall vacancy in the suburbs increased 12 basis points, to 18.6 percent in the third quarter. Class A average asking rents increased to $27.14 per square foot from $26.90 in the second quarter while both Class B and Class C rents decreased from the previous quarter.
Despite the vacancy increase, leasing activity in the suburbs outpaced the previous year by over 630,000 square feet, signaling positive velocity overall. In fact, the negative absorption experienced in the third quarter was heavily skewed by just a few significant departures, including T-Mobile and McGraw-Hill in the O’Hare and I-55 Corridor submarkets, respectively. Available space increased most notably in Class A buildings during the quarter.
Overall vacancy in the Central Business District increased 38 basis points over the second quarter, to measure 13.1 percent. Negative absorption continued in the third quarter, as 88,212 square feet was returned to the market, however, leasing activity continued strong with Facebook inking a deal for 263,000 square feet at 151 North Franklin Street. Rental rates continued to increase for both Class A and Class B properties.
Nearly 4.5 msf of office space is under construction downtown, with the majority of activity continuing to occur in the West Loop submarket. The most notable project is The Post Office redevelopment, which will bring roughly 2.7 msf to the West Loop when complete. 811 West Fulton Market delivered 64,000 sf of Class A office space to the West Loop submarket, which contributed to an increase in vacancy and availability.