Chicago Area Industrial Market Snapshot: Second Quarter 2009

CHICAGO, IL--The following summary is designed to provide a brief overview of the Chicago area industrial market during the second 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 erin.mays@grubb-ellis.com

To access the full Chicago Industrial Metro Trends report and other Grubb & Ellis research publications, visit www.grubb-ellis.com/research.

METRO CHICAGO REGION

The region’s industrial vacancy stood at 11.6 percent at the end of second quarter of 2009, up from 11.4 percent in the first quarter. The market experienced negative absorption of 991,255 square feet.

Occupancy in the General Industrial and R&D and flex sectors contracted by approximately 1.3 million square feet and 500,000 square feet of negative absorption, respectively.

CENTRAL WILL COUNTY

The Central Will submarket ended the second quarter with a vacancy rate of 25.1 percent, down from 27.1 percent in the first quarter.

The submarket posted positive absorption of 1,155,340 square feet, mostly due to large tenant occupancies taking place.

Two tenants occupied space at the CenterPoint Intermodal Center I in Elwood: Cypress Medical Products moved into 383,000 square feet, while Alliance 3PL Corp. took occupancy of just over 415,000 square feet.

California Cartage also commenced its new lease of 374,000 square feet at 251 Laraway Road in Joliet.

The submarket currently has just 38,000 square feet of new development under construction, a sign that the construction pipeline has tapered off after 5.8 million square feet of new speculative construction, most of it logistics space, was delivered to the submarket since June 2008.

ANALYSIS

The Central Will submarket remains one of the Chicago industrial market’s most important regions, particularly in the logistics sector.

As a result of completed new construction projects hitting the Central Will submarket, finding tenants to absorb this new inventory will be challenging.

Third-party logistics transactions have been more prevalent in the market as companies continue to find ways of cutting costs by outsourcing distribution activities.

The fact that virtually no new construction is in the pipeline also bodes well for future equilibrium in Central Will, but in the meantime, researchers expect rents to remain steady or fall slightly in the coming quarters.

SOUTH CITY

Industrial vacancy in the South City submarket rose 30 basis points to 7.3 percent in the second quarter 2009, from the prior quarter in part due to 305,807 square feet of negative absorption.
The area currently has 212,942 square feet of industrial space under construction.

ANALYSIS

While no region has escaped the recession, the southern area of the City of Chicago has been an active submarket due to the efforts of developers to renovate and redevelop obsolete manufacturing space into mixed-use facilities.

Logistics users, particularly food distributors, have been particularly interested in this area because of its high concentration of rail and highway options.

With redevelopment efforts still underway and the timeless benefits inherent in a good location with plenty of transportation options, researchers expect the submarket to remain stable.

O’HARE

Vacancy jumped 100 basis points to 11.9 percent in the O’Hare industrial submarket as the area experienced negative net absorption of 902,495 square feet.

Approximately 66,400 square feet of build-to-suit activity is underway.

ANALYSIS

The O’Hare industrial submarket relies heavily on cargo traffic at O’Hare International Airport, which has declined significantly since its high point in 2007 as a result of the recession.

Likewise, development in the submarket hit its own peak in the fourth quarter of 2007, when approximately 18.3 million square feet of new construction was under way.

With just over 66,000 square feet of new construction active today, it’s clear the market is attempting to correct itself.

With little to no activity expected for the remainder of the year, asking rates are expected to stay flat or drop.

Long-term, however, companies will still prefer to locate themselves near the airport. Researchers do not expect demand to pick back up until mid-2010.