Industrial builders in Chicagoland broke records for new construction this summer, outpacing the already fast pace of development in 2021. Sleek modern warehouses, used to store and distribute goods that feed online shoppers’ appetite for ever-faster deliveries, account for the majority of construction underway .
“When people hear the word industrial, they still think of chimneys, but this is almost invariably warehouse and distribution space,” said Craig Hurvitz, vice president of market research at Colliers International.
Increasing interest and one uncertain economy did not slow down pioneering urban areas. Developers in the third quarter began the construction of 48 buildings, which, when completed, will total 17.2 million square meters, 32% larger than the previous record, according to Colliers. These projects brought the total under construction to 32.5 million square feet, the most at one time in the market’s history.
“This is a monumental construction report, and a lot of records were broken,” Hurvitz said.
Demand soared after the pandemic began and millions of at-home consumers began ordering products online, he added. Many companies were forced to deal with the rush of orders with stocks either too small or out of date.
Developers responded by launching the construction of huge facilities, often in outlying suburbs near transportation arteries like I-55 and I-80, including Romeoville, where Molto Properties broke ground this summer on Weber55 Logistics Park, a two-building , 1.1 million -square-foot complex on 60 acres, and Joliet, where NorthPoint Development has just begun construction on former farmland of a 1.2-million-square-foot building, part of its new Third Coast Intermodal Hub.
Most of the buildings under construction were launched on spec, meaning the developer broke ground before landing a tenant. That shows confidence in the Chicagoland market, and so far it hasn’t been misplaced, according to Hurvitz.
“We continue to see large leases signed every quarter,” he said.
Six or seven years ago, only a few companies a year would sign leases in the Chicago-area market for more than 500,000 square feet of warehouse space, but there were 16 such deals in 2020, 19 in 2021 and 13 in the first three quarters of 2022, said Hurvitz.
Companies continued to sign leases for spec buildings in the third quarter, sometimes before developers had even completed the work. Business supply giant Uline leased the entire one-million-square-foot building under construction at 10322 140th Ave. in Bristol, Wisconsin, just over the Illinois border. And Ryder Logistics leased a 543,638-square-foot property at 310 Overland Drive in North Aurora developed by Opus Group.
Economic headwinds will soon help slow construction, according to Collier’s Executive Vice President Mike Senner. The Fed raised interest rates throughout 2022 to cool the economy and tame inflation. The moves will affect everyone in industrial real estate, and with more increases likely, project funding is already drying up.
“The projects that are being built today were all baked in before everything changed,” he said. “We’re in a completely different environment than we were even six months ago, so the next few quarters are probably going to look very different.”
In addition, many building materials and building components continue to be in short supply, according to Ed Lowenbaum, managing principal of Cresa Chicago. Steel loading docks, for example, can take eight or nine months to put in place, and such shortages will help stifle new construction in 2023.
“There will be less of a gold rush mentality, the kind where people need space at any cost,” Lowenbaum said. “Instead, it is more likely that any new construction in the future will be a planned expansion.”
Even Amazon has gone silent. During the worst of the pandemic, the e-commerce titan expanded faster in the metro area than any distribution company, taking more than half of the total leased space in the second quarter of 2020, Hurvitz said, but its leasing activity dropped to a trickle. year, and it has not initiated any new construction projects.
“It shows how strong the current market is,” Hurvitz said. “We are no longer dependent on Amazon.”
The ongoing industrial buildings likely won’t sit empty for long, even if new construction stalls later in 2023, Senner said. So many companies still want to consolidate operations into new, larger facilities that buildings completed this year and early next year should find tenants.
“There are still a lot of companies that are in second-generation space that want to be in modern warehouses,” Senner said. “We desperately needed to add inventory so the spigot doesn’t close completely. We’ll continue to see a fair amount of leasing activity, even if it won’t be a record.