Huge warehouses sprouted up across the Chicago metro area at a record-setting pace in 2023, blowing past records set the previous two years. And with retailers and other companies still hungry for space to store and distribute their products, these new buildings will likely lease up quickly.
“The strong demand coming out of the pandemic drove this development,” said David Bercu, executive vice president of Colliers, a commercial real estate firm. “It’s unchartered territory, really unprecedented, but we could see most of this new product absorbed in the next 12 months.”
Developers last year completed 70 big-box warehouses, ones of more than 200,000 square feet, in Chicago and the suburbs. Those warehouses added up to nearly 33 million square feet, up from 25 million in 2022 and 20 million in 2021, according to Colliers.
Recent projects include behemoths like the 1.4 million-square-foot building south of I-80 in Joliet already leased by Target Corp., and the 1.2 million-square-foot multilevel warehouse rising at the corner of Elston Avenue and Division Street near Goose Island in Chicago.
Homebound consumers began overloading the industrial supply chain with online orders in 2020, and developers struggled to keep up with the need for new warehouses, Bercu said. Online shoppers pushed for even faster deliveries, extending the building boom as companies began planting “last-mile” warehouses near densely populated areas.
“This happened not just in Chicago, but in other hubs like Dallas, Atlanta, eastern Pennsylvania, and seaports like Savannah,” Bercu said. “All over the country, industrial assets were very much in vogue, and justifiably so.”
It made perfect sense for Logistics Property Co. to break ground on the Goose Island project, said Vice President Ben Fish. The former site of a Peoples Gas facility, it’s near the Kennedy Expressway and will allow quick deliveries to customers in upscale neighborhoods like Lincoln Park and Bucktown. It will also be Chicago’s first distribution complex where trucks can drive up to a second floor and load merchandise, doubling the traffic the corner lot can handle.
“Because Chicago is so land constrained, it’s extremely hard to find sites,” Fish said. “We thought, why not build it with one story on top of the other?”
The historic pace of industrial development did finally slow, Bercu said. The vacancy rate for Chicago-area big-box properties more than doubled to nearly 9% over the past year, a signal that developers caught up with demand, and the amount of space under construction fell from 29 million square feet at the end of 2022 to about 14 million at the end of last year.
The slowdown may have a silver lining.
“We’re not going to flood the market and end up with an oversupply,” Fish said. “We will have the time needed to absorb the record amount of product developed over the past six to eight months.”
The pace of new leasing also slowed. Although companies like Target Corp., Solo Cup and Unilever all signed deals last year for mega-suburban warehouses of more than 1 million square feet, total big-box leasing in 2023 fell to 17 million square feet, less than half the amount taken in 2021, Colliers found.
Logistics Property Co. will this summer put the finishing touches on its new riverfront complex. Fish said he remains confident the company will find users and the region’s leasing slowdown isn’t worrisome.
“All we’re doing is getting back to pre-pandemic levels,” he said. “No one thought this would last forever.”
