Chicago Industrial Finished Strong in 2022
Following a slight dip in demand during the third quarter, it picked right back up during the final quarter of the year, with net absorption totaling 9.9 million square feet between October and December. This brought the total for 2022 to 40.6 million square feet – the second greatest annual net absorption total in the market’s history just behind last year’s 44.9 million square feet and a 2022 total greater than any other industrial market in the country.
Despite an increase in speculative construction deliveries, the industrial vacancy rate decreased during all four quarters of 2022, dropping nearly a full percentage point from 5.44 percent at the end of 2021 to an all-time low of 4.5 percent by the end of December. While this rate slowed during the last two quarters of the year – dropping only 8 basis points during the six month period – this was largely a function of new vacant product being delivered rather than a drop in demand. Half of the 22 tracked submarkets reported a vacancy rate below the market average and seven boasted a rate below 3 percent.
Unprecedented demand over the past several quarters resulted in a dramatic increase in development. Developers started construction on 88 speculative buildings totaling 31.8 million square feet during 2022 – an annual total 43 percent greater than the previous annual record of 22.2 million square feet recorded last year. Much of this space will deliver during 2023, and will likely result in a temporary increase to the market’s vacancy rate due to the sheer volume of space coming to market. At the end of the year, 96 buildings totaling 35.6 million square feet were under construction, 85 percent of which was being built on a speculative basis.
New leases and lease expansions totaled 48.9 million square feet during 2022 – the second greatest annual total ever recorded, but only 77 percent of last year’s total of 63.4 million square feet. New leasing activity dropped during each quarter of the year, a function of how tight the market has become rather than a drop in tenant requirements. Another 14 new leases greater than 500,000 square feet were signed during 2022, another impressive year for mega-sized leases.
Key Takeaways
- Chicago’s industrial market led the nation in total absorption during 2022, recording 40.6 million square feet for the year.
- The industrial vacancy rate continued its fall during all four quarters of 2022, but is poised to climb as record speculative development is delivered later in 2023.
- Rental rates climbed 14 percent year-over-year during 2022, with in-demand infill submarkets seeing an even steeper increase. Rates will continue to increase during 2023 at a more gradual pace.
