Future Cities
2020 North America Industrial Big Box Review & Outlook
Chicago
Chicago’s central location and plethora of logistics capabilities make it one of the most in-demand big-box markets in the country. A flurry of activity because of the large increase in e-commerce sales significantly lowered available inventory, giving occupiers minimal options in the latter part of the year. Development in 2020 was dominated by build-to-suit. Speculative construction will increase this year, giving occupiers more options and increasing transaction activity.
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Demographics
More than 9 million people live within 50 miles of the market core. Chicago is one of the few markets in the country with minimal population growth; the 50-mile region is only expected to grow by 0.2% over the next five years. An expanded radius of 250 miles reaches 37.6 million people.
Figure 1: Chicago Population Analysis
Source: CBRE Location Intelligence.
According to CBRE Labor Analytics, Chicago’s warehouse labor force of 208,000 workers—the third largest in the nation—is expected to grow by 10% over the next decade. The average wage for a non-supervisory warehouse employee is $14.64 per hour, 4.1% higher than the national average.
Figure 2: Chicago Warehouse & Storage Labor Fundamentals
Source: CBRE Labor Analytics.
*Median Wage (1 year experience); Non-Supervisory Warehouse Workers (forklift, warehouse workers).
Location Incentives
Over the past five years, there have been 311 economic incentives deals totaling nearly $683 million at an average of $20,441 per new job in the Chicago metropolitan area, according to Wavteq.
According to CBRE’s Location Incentives Group, among the top incentive programs offered in metro Chicago is the Economic Development for a Growing Economy Program (EDGE), which provides non-refundable, discretionary tax 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 more than 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 less than 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.
Note: The extent, if any, of state and local offerings depends on location and scope of the operation.
Logistics Driver
Chicago is the rail hub of the U.S. The region is home to seven Class 1 rail carriers. More than 1,300 freight, passenger and commuter trains pass through the Chicago region every day, according to the Journal of Commerce. Illinois has the third highest total of interstate routes and mileage. The two longest, I-90 and I-80, provide East/West access. And 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 largest air cargo gateways in the world. O’Hare processes just under 2 million metric tons of cargo per year worth more than $200 billion. Chicago Rockford International is one of the top five fastest growing cargo airports in the world, which grew its cargo volume by 11% in 2019, according to Airports Council International.
Chicago is one of the largest industrial bases in the U.S. and consistently leads the nation in investment sales volume. Positive market fundamentals throughout this cycle have helped propel sales prices and create record-low cap rates. Cap rates compressed by 25 bps in 2020 for bulk product. Continued cap rate compression for Class A bulk product is expected in 2021, as well as increased sales volume.
Capital Markets
Figure 4: Cap Rate Comparison
Source: CBRE Research.
Supply & Demand
With 570 million sq. ft. of total inventory, Chicago is the largest big-box market in North America. Transactions increased by 16.4% year-over-year to 41.1 million sq. ft in 2020, the third highest total in North America. General retailers and wholesalers accounted for 34% of all transactions in 2020. The direct vacancy rate fell to 4.0%, 50 bps lower than in 2019. Taking rents increased by 11.7% to $4.57 per sq. ft.
Construction completions increased to 13.2 million sq. ft. in 2020 but had no effect on the direct vacancy rate. With 77% of the nearly 24 million sq. ft. currently under construction already preleased, there is little chance of oversupply in 2021.
Figure 5: 2020 Occupier Transaction Market Share
Source: CBRE Research.
Figure 6: Transaction Volume
Note: Includes new leases, renewals, and user sales transactions 200,000 sq. ft. and above.
Source: CBRE Research.
Figure 7: Big Box Year-Over-Year Comparison
Source: CBRE Research.
Figure 8: Under Construction & Percentage Preleased
Source: CBRE Research.
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.
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2020 North America Industrial Big Box
This report provides an in-depth overview of supply-and-demand fundamentals, demographics, logistics drivers, labor and location incentives for the top 22 markets in North America.