Key Takeaways |
37.5 million square feet under construction
The most space under construction at one time in the market’s history, 89% is spec
8.6 million square feet delivered during Q3 2022
The third greatest amount of new space delivered during a single quarter
17.2 million square feet of construction starts in Q3 2022
By far the highest quarterly total for construction starts, 32% greater than the previous record
5.8 million square feet leased in recent spec product
A 24% increase over last quarter’s total of new leasing activity in recently-completed spec
91 percent leased – speculative projects built since 2013
Vacant speculative construction deliveries have pushed vacancy up two quarters in a row
Speculative construction projects since 2013 by leasing status
Construction Starts Blow Past Previous Peak, Nearly All Spec
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Chicago Industrial
Construction Review
Life in the Fast Lane:
Developers Shatter Records
Q3 2022
Spec Development During Current Cycle
Total construction starts by quarter and type
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Q3 2022
Developers started construction on a whopping 48 projects totaling 17.2 million square feet during the third quarter of 2022, crushing the previous record of 13.1 million square feet recorded during the second quarter of 2020 by 32 percent.
Among the 48 starts, 45 are being built on speculative basis with no tenants lined up to occupy the building. These projects total 16.6 million square feet, or 96 percent of the construction starts recorded during the quarter. Never before has speculative development represented such a high percentage of construction starts during a quarter – another sign of the strength of the market and confidence developers share in continued demand.
Eleven of the construction starts were 500,000 square feet or greater, with three greater than 1 million square feet. This activity brings the total space under construction to 37.5 million square feet among 94 projects – only the second time this total has exceeded 30 million square feet – and a total 25 percent greater than the previous record of 30.1 million square feet recorded during the second quarter of 2021. 24 buildings greater than 500,000 square feet are now under construction, including eight buildings greater than 1 million square feet.
Total quarterly spec deliveries and new leasing activity in spec built since 2013
Following a drop off in new leasing in recent speculative buildings during the second quarter, new leasing activity in recent speculative product increased by 24 percent during the third quarter, totaling 5.8 million square feet among 30 new leases and lease expansions.
Despite the uptick, new leasing activity still fell short of the 6.5 million square feet of new speculative space delivered during the quarter. This represented the second quarter in a row new leasing activity dropped below the speculative completions, resulting in another uptick to the vacancy rate in recently-completed speculative product.
Pre-leasing of speculative buildings under construction continued during the quarter, with eight pre-leases totaling 2.7 million square feet signed. The largest pre-lease involved shipping and business supply giant Uline leasing the entire 1,087,275-square-foot building under construction at 10322 140th Avenue in Bristol, Wisconsin.
Despite Continued Strong Leasing, More Spec Space Delivered During Q3
Total spec delivered since 2013, quarterly spec deliveries, and spec vacancy rate
Twenty speculative projects totaling 6.5 million square feet were completed during the third quarter, the greatest amount of speculative space delivered in a single quarter in the history of the market. While these projects were 35 percent leased upon completion, 4.2 million square feet of vacant space was still introduced, pushing the vacancy rate in speculative projects delivered since 2013 up 150 basis points to 8.8 percent.
This was the second quarter in a row the vacancy rate increased in speculative product completed during the ongoing cycle after bottoming at 7.0 percent during the first quarter of the year.
This vacancy rate is expected to continue to climb over the next several quarters, even with demand for new construction expected to remain elevated. While some speculative buildings will continue to lease quickly, or even pre-lease, the average time lease up new speculative buildings is expected to increase, simply due to so much space under construction at one time.
Vacancy Rate in Recent Spec Increased for Second Consecutive Quarter
NorthPoint Development started construction on the first two buildings in its Third Coast Intermodal Hub business park in Joliet – building 2 will measure 1,218,120 square feet and building 1 will measure 1,056,353 square feet.
Q3 2022 Largest Construction Start
The 2.4-million-square-foot Meta/Facebook data center campus in DeKalb is the largest project actively under construction in Chicago’s industrial market.
Q3 2022 Largest Building Under Construction
CRG delivered its 1,033,450-square-foot Cubes at Country Club Hills building in the South Suburbs submarket late in the third quarter.
Q3 2022 Largest Construction Completion
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Grant Levin
Research Analyst
grant.levin@colliers.com