Future Cities
2023 North America Industrial Big Box Review & Outlook: Chicago
April 4, 2023 5 Minute Read
Chicago’s fundamentals remained resilient in 2022, with record-low vacancy and double-digit rent growth. Companies continue to expand into this big-box market, the largest in North America, because of its central location and significant logistics advantages. Occupier needs depend on completions in the coming quarters, as more seek modern amenities. Demand for larger big-box space remains strong despite macroeconomic concerns. Chicago is well-positioned for 2023.
Demographics
Over 9 million people live within 50 miles of the market core. Chicago’s population within a 50-mile radius is expected to decline by 1.2% by 2027. Even with this decline, Chicago would still have North America’s fourth-largest 50-mile radius population and fifth-largest 250-mile radius population by 2027.
Figure 1: Chicago Population Analysis
Source: CBRE Location Intelligence, Q4 2022.
Chicago’s warehouse labor force of 230,940 workers is the second-largest in the U.S, according to CBRE Labor Analytics. A non-supervisory warehouse employee’s average wage is $19.40 per hour, 15% above the national average.
Figure 2: Chicago Warehouse & Storage Labor Fundamentals
Source: CBRE Labor Analytics, Q4 2022.
*Median wage (1 year experience); non-supervisory warehouse material handlers.
Location Incentives
Over the past five years, there have been 325 publicly known economic incentives deals totaling over $946 million for an average of $34,756 per new job in metro Chicago, according to Wavteq.
CBRE’s Location Incentives Group reports that top incentive programs offered in metro Chicago include the Economic Development for a Growing Economy Program (EDGE). It provides non-refundable, discretionary credits for corporate income taxes for up to 10 years. These credits equal up to 50% of new income tax withholdings generated by a project’s new job creation. To qualify, companies with over 100 employees worldwide must invest a minimum of $2.5 million and create new jobs equal to 10% of the company’s total employment. Companies with under 100 employees worldwide must create new jobs equal to 5% of the company’s total employment.
Figure 3: Chicago Top Incentive Programs
Source: CBRE Location Incentives Group, Q4 2022.
Note: The extent, if any, of state and local incentive offerings depends on location and scope of the operation.
Logistics Driver
As a top U.S. rail hub, Chicago is home to seven Class 1 rail carriers. More than 1,300 freight, passenger and commuter trains pass through the region daily, according to the Journal of Commerce. Illinois has the third-most interstate routes and mileage. The two longest, I-90 and I-80, provide east and west access. Two key connections to the Gulf States, I-55 and I-65, end in the Chicago area. Add in I-57, I-64, I-70 and I-94 and an Illinois driver can reach almost every population center in the nation by using one interchange.
Chicago O’Hare International Airport is one of the world’s largest air cargo gateways. O’Hare processes just under 2 million metric tons of cargo per year, worth over $200 billion. Chicago Rockford International is one of the world’s fastest-growing cargo airports and offers another viable goods transportation option to the market.
Chicago O’Hare International Airport processes just under 2 million metric tons of cargo per year, worth over $200 billion.
Capital Markets
Chicago investment demand slowed due to macroeconomic volatility throughout Q2-Q4 2022, but strong investor demand and liquidity remained for well-positioned offerings. Rapidly rising interest rates resulted in a 100-150 bps increase in core cap rates from approximately 4% to the low-5% cap range. However, strong leasing, a record low vacancy rate, and 15% year-over-year rent growth kept many investors active given the ability to buy assets at lower prices. CBRE projects further robust rent growth, a more competitive capital marketplace, and possible cap rate compression as the debt markets stabilize throughout 2023.
Supply & Demand
With 523 million sq. ft. of total inventory, Chicago is North America’s largest big-box market. Demand for big-box product continues outpacing supply with 21.3 million sq. ft. of positive net absorption and only 15.1 million sq. ft. of construction completions. Robust absorption lowered the vacancy rate to 2.5%, 50 bps lower than the previous year. Nearly 34 million sq. ft. was leased in 2022, North America’s third-highest. This was led by the 3PL industry, which took 41% of that space. Low vacancies and strong leasing increased first-year base rents to $5.71 PSF per year, 15.2% above the previous year.
Construction began on many big-box projects in Chicago, like most North American markets in 2022. 32 million sq. ft. is under construction, with 22% pre-leased. While 2022 construction completions could break records, the 25 million sq. ft. of available under-construction space is much lower than the past three years’ average leasing activity. Chicago is well-positioned to handle a temporary economic slowdown. It will maintain low vacancy rates and solid rent growth for the foreseeable future.
Figure 4: Share of 2022 Leasing by Occupier Type
Note: Includes new leases and renewals 200,000 sq. ft. and above.
Source: CBRE Research, 2022.
Figure 5: Lease Transaction Volume by Size Range
Note: Includes new leases and renewals 200,000 sq. ft. and above.
Source: CBRE Research, 2022.
Figure 6: 2022 Construction Completions vs. Overall Net Absorption by Size Range
Source: CBRE Research, 2022.
Figure 7: Direct Vacancy Rate by Size Range
Source: CBRE Research, 2022.
Figure 8: Under Construction & Percentage Preleased
Source: CBRE Research, 2022.
Figure 9: First Year Taking Rents (psf/yr)
Note: Includes first year taking rents for leases 200,000 sq. ft. and above.
Source: CBRE Research, 2022.
Explore Big Box Insights by Market
More than 2.6 million people live within 50 miles of the market core, with a projected five-year growth rate of 2.1%.
Over 2.6 million people live within a 50-mile radius of the urban core, with a 2.3% expected five-year growth rate.
Nearly 3 million people live within 50 miles of St. Louis but, like many Midwest markets, this is expected to decline by 0.4% over five years.
