• Chicago Areas Industrial Market

    Industrial Market Expected to Fare Best Among Chicago Property Sectors

    The Chicago industrial market held up well in the first quarter of 2020, though a noticeable downshift in activity occurred in the second half of March as Illinois’ shelter-in-place mandates took effect.

    Prior to the coronavirus outbreak, the market's industrial demand had held up well, reaching 1.9 million square feet in the first quarter, or roughly 16% higher than Chicago's absorption totals in the first quarter of 2019. At the same time, sales volume across Chicago's industrial sector hit a new first-quarter high of $1.4 billion as the nation’s largest real estate investment trusts, institutional investors and private-equity buyers continued to target Chicago.

    Given its connectivity and geographic advantages, including strong highway and rail access, Chicago serves as the regional distribution hub for the Midwest and as a major thoroughfare for goods traveling across the country. As such, segments of Chicago’s industrial market are well positioned to benefit from greater e-commerce activity, which should help it weather an economic downturn better than other, more manufacturing-reliant regions of the country.

    With changes in consumer habits and an increase in online shopping, demand for industrial space should continue to grow for well-placed logistics assets, while greater adoption of click-to-delivery grocery services should bolster Chicago’s already tight cold storage sector.

    Though the industrial sector is expected to fare best among Chicago's commercial real estate sectors, it will not fully escape the negative impacts of the coronavirus pandemic. U.S. economic growth faces many headwinds, including dampened aggregate demand and reduced export growth, both of which will adversely impact the industrial warehouse sector in the coming quarters.

    Thus, while longer-term advantages are abundant, the impending economic slowdown is still expected to have a near-term impact on the industrial sector, especially when considering Chicago’s active development pipeline. The delivery of nearly 5.8 million square feet of new space pushed vacancies up by about 30 basis points in the first quarter, and given that there is nearly 9 million square feet of speculative industrial space set to deliver through the remainder of this year, vacancy is expected to tick up in the coming months.