A rise in leasing volume hit the Chicago industrial market in the first quarter, resulting in 127 new leases or lease expansions totaling 12.1 million square feet, the real estate investment firm Colliers International Group Inc. (NASDAQ: CIGI) said Tuesday.
The leasing volume results came after a slowly decelerating 2022 period with less speculative development coming to market, leaving the market very tight.
Despite strongly positive net absorption — the calculation of the amount of space occupied minus the amount of space vacated — and an uptick in new leasing volume, Chicago’s industrial vacancy rate increased during the first quarter of 2023 for the first time since the fourth quarter of 2020.
Twenty speculative construction projects totaling 7.1 million square feet were delivered during the quarter, introducing 5.4 million square feet of vacant space to the market and pushing up the overall industrial vacancy rate by 3 basis points to 4.53%, Colliers said.
Developers are underway on another 79 speculative construction projects totaling 27.5 million square feet, much of which will be delivered during 2023. This will result in additional increases in Chicago’s rising industrial vacancy rate during the year, Colliers said. However, it will also bring welcome new products to the record-tight market.
Net absorption hit 7.4 million in the first quarter. For the past eight quarters, net absorption has hit a cumulative number of 86 million square feet.
Tenants signed 24 new leases totaling 6.1 million square feet, doubling last quarter’s total, Colliers said.
Seven of those were for buildings greater than 300,000 square feet, four of which were pre-leases in spec buildings not yet completed.
Rates rose 15.7% compared to a year ago. Some in-demand submarkets that comprise the Chicago area came in with rent increases of 20% or greater.
Demand for product is expected to remain strong over coming quarters, which will likely result in the vacancy rate leveling off and beginning to fall again as development activity cools off a bit toward the end of the year.
After peaking in 2021, new leasing volume decreased during each quarter of 2022 due to how tight Chicago’s industrial market had become and how few options tenants had to lease.