Q1 2023 Industrial Real Estate Report: Chicago, IL
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
Chicago, often referred to as "the Windy City," is known for its iconic architecture and vibrant music scene. The city is also recognized for its major industries, including finance, technology, manufacturing, healthcare, transportation, and food processing.
Chicago has a population of 8.9 million people, with a growth rate of 0.40%. Despite current economic conditions, Chicago's industrial real estate market performed well, with low vacancy rates, stable leasing activity, and a significant amount of new construction in the pipeline.
General Area Overview & Demographics
Chicago is a lively and diverse city located in Illinois. As one of the largest cities in the country, it serves as a major hub for finance, commerce, culture, and transportation. The city's stunning architecture, rich history, and thriving arts scene attract millions of visitors each year, yet residents in the city struggle to keep up with rent payments.
The Economy, Population, & Geographic Makeup of Chicago
Situated on the southwestern shore of Lake Michigan, Chicago enjoys a unique geographical advantage. Spanning an area of approximately 234 square miles (606 square kilometers), the city is divided into 77 distinct neighborhoods, each with its own character and identity. From the bustling downtown area known as The Loop to the eclectic neighborhoods of Wicker Park and Logan Square, there is something for everyone in this cosmopolitan city.
Chicago's demographics reflect its diverse population, resulting from a history of immigration and cultural assimilation. With a wide range of racial and ethnic groups, the city is a melting pot of cultures. Approximately 32% of the population identifies as African American, 29% as White (non-Hispanic), 29% as Hispanic or Latino, and around 7% as Asian American. Additionally, there are thriving communities of Polish, Irish, German, and other European descent.
The city boasts a robust education system, with numerous universities and colleges, including prestigious institutions like the University of Chicago, Northwestern University, and DePaul University. Chicago is also known for its passionate sports culture, with dedicated fans supporting teams such as the Chicago Cubs (baseball), Chicago Bulls (basketball), and Chicago Bears (American football).
Summary of Chicago Industrial Real Estate Performance in Q1 2023
In the first quarter of 2023, Chicago's industrial vacancy rate landed at 4.53%, a slight quarter-over-quarter increase over Q4 2022's numbers. The highest vacancy rates were observed in McHenry County, reaching 9.82%.
Absorption totaled 7.6 million square feet, indicating a decrease of approximately 2.4 million square feet compared to the previous quarter.
What are industrial real estate rents like in Chicago, IL?
As for rental rates, the average asking lease rates increased to $5.98 per square foot quarter-over-quarter. This was also an increase over Q3 2022's numbers.
The highest rental rates were found in Chicago's North submarket, averaging $8.34 per square foot, while the lowest rates were in DeKalb County at $4.15 per square foot.
Purchase & Leasing Activity
In Q1 2023, approximately 1.8 million square feet of Chicago industrial real estate were sold. However, investment sales saw a 92% decrease compared to the first quarter of the previous year, with only 992,000 square feet sold. User sales totaled 826,000 square feet, representing a 72% decrease year-over-year.
Leasing activity remained stable, with 11.2 million square feet leased in Q1 2023.
Notable Industrial Real Estate Deals in Chicago in Q1 2023
Several notable deals took place in Chicago's industrial real estate market in Q1 2023:
- Microsoft purchased 249,000 square feet in Northern Cook County for $41.5 million at $166 per square foot.
- New Mountain Capital purchased 200,000 square feet in Chicago South for $14.7 million at $74 per square foot.
- Solo Cup Co leased 1.03 million square feet in the South Suburbs.
- CJ Logistics renewed its lease of 1.02 million square feet in the Interstate 80 Corridor.
These are just a few examples of acquisition activity in Chicago's industrial real estate market throughout Q1 2023.
New Industrial Real Estate Development Activity in Chicago in Q1 2023
In Q1 2023, just over 6 million square feet of new Chicago industrial real estate were delivered. Additionally, there were nearly 25 million square feet under construction, with the Interstate 80 Corridor accounting for almost 6 million square feet of that total.
Market Forecast for Chicago's Industrial Real Estate Market
Vacancy rates, absorption, and rental rates are expected to increase as the year progresses. The substantial amount of new construction in the pipeline will contribute to higher vacancy rates and leasing activity as these new developments enter the market.
Takeaways for Industrial Real Estate Investors
Investment sales for Chicago industrial real estate have declined in Q1 2023, primarily due to a lack of large-scale portfolios. Coupled with ongoing economic setbacks, industrial market sales may continue to face challenges throughout the year.
Do your research, stay diligent, and happy investing.
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