The Chicago industrial real estate market didn’t just break records in 2021. It obliterated them.
By virtually every metric, last year was the best in the long history of Chicago industrial real estate, which is dominated by logistics warehousing and distribution. Demand was unprecedented as measured by net absorption, which determines the amount of occupied space minus the amount that’s vacated.
According to data published Tuesday by Canadian real estate services firm Colliers International (NASDAQ/TSX: CIGI), Chicago’s net absorption total of 44.5 million square feet shattered the previous all-time record of 26.6 million square feet set in 2016, Colliers said. It also made Chicago the country’s top market in 2021 for net absorption.
More than 30 million square feet of net absorption occurred during the second half of the year, which would have been a record in itself, Colliers said.
New leasing activity in 2021 totaled 63.4 million square feet, a 34% increase from the previous record set in 2020. There were 648 new leases or lease expansions last year, an all-time record for the market. In the fourth quarter alone, 181 leases were signed, another record.
Mega-sized leasing hit all-time highs with 19 leases signed for buildings of more than 500,000 square feet, Colliers said. A record 30.9 million square feet of new construction was delivered last year, a reflection of the once-in-a-lifetime bull market for industrial warehouse space due to the multiyear spike in demand for e-commerce fulfillment and delivery that was accelerated by the COVID-19 pandemic.
Demand for customized build-to-suit projects and what is known as speculative development — a “build-it-and-they-will-come” model — remained red-hot last year, with speculative construction representing 65% of the 29.1 million square feet in various stages of development, Colliers said. Of the 23 build-to-suit projects completed last year, eight involved the delivery of buildings larger than 1 million square feet, which was another record.
Still, build-to-suit activity accounted for just 9.5% of total leasing volume, compared to nearly a quarter of all signed leases in 2020, indicating tenants’ almost-frantic desire to occupy logistics warehouse space as fast as possible.
The market’s industrial vacancy rate in 2021 fell more than 2 percentage points to 5.44%, Colliers said. The all-time low of 5.39% set in 2000 will likely be broken by the end of the first quarter, said Craig Hurvitz, a Colliers vice president-market research who specializes in the Chicago market.
In a Tuesday email, Hurvitz said that net absorption will slow in 2022 but only because demand has vastly exceeded the available supply. “Demand will remain strong, but there will be a lot of competition for available space,” he said.
The Interstate 55 corridor, which links downtown Chicago with the Illinois-Missouri border, witnessed remarkable growth in 2021, with vacancy rates dropping to 3.36% from 12.37% in just one year. Demand along the parts of the corridor in the Chicagoland market has been so strong that there is virtually no available land to be developed, Colliers said.