Metropolitan Chicago Industrial Overview

The nation’s economic woes adversely affected the Chicago industrial market in 2008. Tight credit and rising foreclosures of both residential and commercial properties has many companies contracting as they forecast slow business ahead. There is hope that the sharp decline in new supply should serve as a market cushion in the future as developers have been unable to get deals financed.

Vacancy and Supply

By the end of 2008, available industrial inventory ballooned to 134.6 million square feet, up 22 percent from the year-end 2007 total. Some of this can be attributed to companies releasing excess space to the market. However, 27 million of the 34.2 million square feet of speculative warehouse distribution space delivered to the market over the past five years is still vacant.

The metropolitan Chicago vacancy rate rose in 2008 to 10.32 percent, up from the year-end 2007 total of 8.58 percent. This represents one of the largest recorded year-over-year increases in the Chicago industrial market.

Additionally, the current state of vacant supply negates four consecutive years of annual declines. 

Leasing and Sale Activity 

All things considered, leasing activity was stronger than expected. The 2008 leasing volume total of 31.9 million square feet was an 8.5 percent decline from the 34.9 million square feet leased in 2007.

The current credit crisis played a significant role in the declining sale activity. Only 13.6 million square feet of sale transactions were completed in 2008, a 27.6 percent decline from 18.7 million square feet in 2007. This 13.6 million square feet is one of the lowest annual totals on record.

Absorption

After six consecutive years of positive annual absorption, the metropolitan Chicago industrial market witnessed absorption of negative 11.08 million square feet in 2008. This performance was very near the record low 11.4 million square feet of absorption that occurred in 2001.

Construction

In 2008, speculative development outpaced build-to-suit projects – 13.1 million square feet versus 5.7 million square feet. The overall total of 18.8 million square feet of new construction was 14.1 percent lower than the 21.8 million square feet registered in 2007.

Speculative construction completions of 13.1 million square feet was the second highest annual output ever.

What to Expect in 2009

A greater number of industrial tenants will complete early lease renewals while trying to negotiate more favorable economic terms with their landlords. We anticipate with the ongoing recession that 2009 user demand will drop to the level witnessed during the recession of the early 1980s.

Tenants with above-standard building improvement needs will have fewer options in 2009, as some landlords with properties available for lease will not have the financial viability to compete for those deals.

Current economic conditions have instilled fear in the consumer, causing a decrease in spending on non-essential big ticket items. Because of this, fewer consumer-based big box industrial tenants are expected to be in the market in 2009.

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