Monday, October 26, 2009

Grubb & Ellis Presents Industrial Market Snapshot Third Quarter 2009

CHICAGO, IL-The following summary is designed to provide a brief overview of the Chicago area industrial market during the third quarter of 2009.

 For more information or to speak with one of the company’s local market experts, please contact Erin Mays at 312.698.6735 or via email at


· The region’s industrial vacancy stood at 11.8 percent at the end of third quarter of 2009, up from 11.6 percent in the second quarter. The market experienced negative absorption of 773,800 square feet.

· Demand for R&D/Flex space proved to be a bright spot, with the region posting more than 308,000 square feet of positive net absorption. Occupancy in the General Industrial and Warehouse/Distribution sectors contracted by approximately 366,000 square feet and 500,000 square feet, respectively.


The Chicago industrial vacancy rate increased for the ninth straight quarter to the highest rate the Chicagoland area has witnessed in over a decade. Company consolidations, downsizing and businesses focused on mere survival have all contributed to the rise in vacant space and downward pressure on asking rates. For the remainder of the year, the only construction the region is likely to see is build-to-suit projects. Landlords will remain flexible and offer increased incentives, while on the investment side, investors will remain cautious as the 2012 due date for more than $150 billion of CMBS and regular bank loans approaches.

(300 N. Riverside Plaza, middle left photo)


· The Central Will submarket ended the third quarter with a vacancy rate of 25.1 percent, unchanged from the second quarter.

· The submarket posted slight positive absorption of 16,500 square feet, bringing the total positive net absorption to more than 2.6 million square feet year to date.

· The fact that no development is currently under construction in the submarket is a sign that the construction pipeline has tapered off after more than 5.8 million square feet of new speculative construction, most of it logistics space, has been delivered to the submarket since June 2008.


As the region with the most positive absorption year-to-date, the Central Will submarket has been benefiting from the logistics sector; however, an excessive amount of recently completed new construction projects without adequate tenant demand has put downward pressure on rental rates and has sent the vacancy rate to the highest of all Chicago submarkets. Researchers expect rates to stay steady or decrease in the coming quarters, while new construction starts are unlikely.


· Industrial vacancy in the South City submarket rose 40 basis points to 7.7 percent in the third quarter 2009, from the previous quarter in part due to 481,000 square feet of negative absorption.

· Preferred Freezer Services’ 175,000-square-foot build-to-suit is currently the only new development underway.


Effects of the national recession have sent the South City’s vacancy rate to its highest point in over three years; however, the submarket’s great location and access to numerous rail and highway options has prompted significant activity from manufacturers and distributors, particularly food users. As a result, researchers predict that the South City submarket will remain stable.


· Vacancy dropped 20 basis points to 11.7 percent in the O’Hare industrial submarket as the area experienced positive net absorption of 144,000 square feet.


Decreased activity at O’Hare International Airport has led the submarket to suffer more than 1.6 million square feet of negative absorption year-to-date; however, the O’Hare industrial submarket earned a reprieve in the third quarter due to several transactions in the 20,000- to 40,000-square-foot range. Since the O’Hare submarket remains overbuilt and demand is not expected to pick back up until mid-2010, rental rates will continue to decline and landlords will continue to entice tenants with generous incentives.

To access the full Chicago Industrial Metro Trends report and other Grubb & Ellis research publications, visit

No comments: