Third Quarter Groundbreakings Signal Growing Competition for Chicago Industrial Landlords
Developers Respond to Increased E-Commerce Demand With Influx of New Projects
The Chicago industrial market saw its highest level of groundbreakings in 4 years. (Getty Images)
By Denes Juhasz and Brandon Svec
Industrial development in the Chicago metropolitan area isn't showing any signs of slowing during the coronavirus pandemic.
Developers have broken ground on approximately 8.6 million square feet of industrial space in the third quarter. That is the highest quarterly level seen in Chicago since the fourth quarter of 2016, when 9.6 million square feet of space broke ground.
While the pandemic has negatively impacted many sectors of the U.S. economy, the industrial market has largely benefited thus far as consumers have increasingly turned to online shopping to meet daily needs. Given Chicago’s centralized location and its rail access, the market sits at a critical juncture for many e-commerce supply chains. That has driven a significant increase in demand for warehouse and distribution space in the area.
Of the 8.6 million square feet of industrial construction starts that began in the third quarter, approximately 52%, or 4.5 million square feet, has been preleased. The remaining 4.1 million square feet is speculative supply, which remains available.
In part because of the significant level of industrial starts in the third quarter, the total amount of under construction industrial space in the Chicago market is at a 4-year high of 21.3 million square feet, with approximately 8.3 million square feet of space still available for lease.
Once it delivers, this new space will compete with a significant amount of recently constructed space that remains available for lease. Of the nearly 50 million square feet of projects that have been completed since 2018, approximately 17.3 million square feet, or 35%, remains available. Thus, while growth in e-commerce has been a boon for Chicago’s industrial market, this growth will need to continue for at least a few more years to keep Chicago’s market fundamentals balanced.
Here’s a look at the largest construction projects to break ground during the third quarter:
Crossroads 55 - 24101 S. Bradley Road, Channahon - Building B: This nearly 1.4-million-square-foot project in the Joliet submarket is being developed by Hilco and remains fully available. The Joliet submarket has consistently seen the largest increase in new supply of any Chicago submarket due to its proximity to two major interstates and access to two massive intermodal terminals, the BNSF Logistics Park Chicago and UP Joliet Intermodal. The project is expected to be completed in December.
CenterPoint Intermodal Center – 3501 Brandon Road, Elwood: This fully available, 1.3-million-square-foot project is also located in the Joliet submarket and is being developed by CenterPoint Properties. In addition to having direct access to two intermodal terminals, which serve as critical components to Asian import-export supply chains and the West Coast, the CenterPoint Intermodal Campus is also distinguished as being the largest inland port in North America. The building is expected to open in December.
Amazon – 23257 S. Central Ave., University Park: This 1-million-square-foot, build-to-suit project for Amazon is being developed by Venture One Real Estate in the Far South Cook submarket. Amazon has been by far the largest driver of new demand in the Chicago market. In addition to the University Park project, Amazon has signed leases on two additional developments. Those projects broke ground this quarter in the Near South Cook submarket and together total nearly 1.6 million square feet.
Exchange 55 – 3501 S. Pulaski Road, Chicago: This 1-million-square-foot project was initially developed speculatively by Hilco Real Estate. Target ended up leasing the entire property in December. Located in the South Chicago submarket, Exchange 55 is a $100 million project in the Little Village neighborhood that is being constructed on the former site of the Crawford Power Plant. The project is expected to be completed in April 2021.