It’s unbelievable because of the strong economy, which has boosted sales of goods manufactured and stored in industrial buildings. The rise of online shopping has added rocket fuel to the market, as e-commerce firms like Amazon have expanded and traditional retailers have retooled their supply chains with modern warehouses. Amazon signed one of the biggest local leases in the third quarter, agreeing to open a 237,000-square-foot “delivery station” in north suburban Skokie that will employ hundreds of people. Amazon also plans to open a fulfillment center of more than a million square feet next year in Channahon, about 11 miles southwest of Joliet.
The primary measure of demand, net absorption—or the change in the amount of leased space versus the prior period—totaled 9.2 million square feet in the third quarter in the Chicago market, the most industrial space here absorbed in a quarter since 2005, according to Colliers. Net absorption has been positive for 28 quarters in a row.
To stay ahead of demand, developers have been building warehouses as fast as they can, often on speculation, or without signing a tenant in advance. In far-flung suburbs, where land is plentiful, they’re putting up massive concrete boxes, some exceeding a million square feet (nearly 23 acres). In Plainfield, Atlanta-based developer Seefried Industrial Properties is overseeing the biggest current project in the area, a 1.5 million-square-foot warehouse for British liquor company Diageo.
Developers have a reputation for overshooting the market, but they haven’t yet in Chicago. They’re expected to complete 23.7 million square feet here this year, just shy of the 24.8 million square feet completed in 2017, a high for the current boom, according to Colliers.
Yet demand is keeping up with supply. Colliers forecasts that Chicago-area absorption will total 22.5 million square feet this year. That would be the second-highest amount absorbed in the current cycle since 2016, when absorption totaled 26.6 million square feet.
President Donald Trump’s trade war with China has hurt U.S. manufacturers and dampened business investment but has yet to trickle down into the Chicago industrial property market, Regnery said.
“The underlying fundamentals have been so good,” he said. “The tariffs haven’t been big enough to change anybody’s plan.”
Long overshadowed by sexier sectors like office buildings and hotels, the industrial real estate market has acquired a halo over the past few years as more investors have viewed it as an e-commerce real estate bet. Last month, Prologis, a San Francisco-based industrial real investment trust, announced a $12.6 billion takeover of Wayne, Pa.-based Liberty Property Trust, another REIT. Both companies have large holdings in the Chicago area.
Big New York private-equity firm Blackstone Group also is investing heavily in warehouses. In September the firm cut a deal to pay $5.9 billion for a 60-million-square-foot industrial portfolio from Los Angeles-based Colony Capital.