The beginning of a slowdown in Chicago?

By Mia Goulart, Senior Staff Writer

After a prosperous run, the inevitable is approaching, as the market has started to slowdown.

The signs? Well, Savills’ Q4 2022 Industrial Report found that (1) while vacancy remains well below the long-term average, it has risen for two consecutive quarters, closing the year at 4.6%, and (2) demand seems to be lessening, though asking-rate growth has not yet abated, increasing 3.7% over the quarter to $5.60 per square foot. Rates have risen slightly over the past two years due to strong occupier demand and upward pressure from inflation.

Savills said, too, that another factor with potential to alter market fundamentals is the high volume of construction. After setting the record for ongoing construction in Q3 2022, Chicago beat its own record. Industrial property construction exceeded 38 million square feet, increasing almost 16% in Q4. Impressive, but many wonder whether current levels of construction are sustainable and if market dynamics will be altered by overbuilding.

Still, Q4 remained just as active in terms of user activity. Tenneco sold and leased nalized agreements with Corgan, Clune Construction, Power Construction and Ujamaa Construction to design and build the facility, and the project is expected to have full entitlements within the next few months and break ground shortly thereafter. The facility has already secured 50% preleasing.

Regarding e-commerce, it’s not farfetched to say what’s happening within this sector might be a warning sign, according to Savills. Following a recent, yet steady decline in sales growth, Amazon abandoned several existing and planned facilities across North America, and Walmart and Nordstrom, for example, have announced significant layoffs.

Chicago has seen an upward trend of direct space, but a shift in sublet supply has yet to occur, hovering at 4.8 million square feet—below the five-year average of 5.7 million square feet.

All this said, Chicago metrics remain comparatively better than markets along the East and West Coasts, and the sector itself remains one of the safest during this time, compared to office and retail where demand appears to have been more fundamentally altered by the effects of the pandemic.

The benefits to this type of project are vast, as are the benefits of its future location within the IMD. The Affordable Care Act (2010) required the digitization of medical records, among other things, which sparked the need for this kind of facility. Several healthcare buildings in and around the IMD will utilize the new facility, but it’s not just healthcare. The high-performance facility will also address the needs of local and regional financial, educational and government organizations.

Technology is the root of it, and it’s no surprise the pandemic accelerated its adoption. We’re more dependent on it than we were just a year ago, let alone 10. Data centers are the infrastructure needed to support the adoption of new technology. It’s the storage of data, but also the connectivity that supports companies providing basic functions, according to Huffman.

For over 45 years, DarwinPW Realty/CORFAC International has been a leader in industrial and commercial real estate. The company specializes in brokerage, property management, investment and development services primarily in the Midwest. DarwinPW Realty’s highly qualified professionals are problem solvers and utilize a breadth of tools and knowledge to serve our clients best.

“Regardless of industry, these facilities are an important part of ensuring that technology is reliable and accessible for the masses,” Huffman said.

Chicago, specifically, is a prime location in terms of connectivity, making it especially desirable for this type of venture.

“Chicago is an attractive site because we’re in the middle of the country and have great fiber,” Huffman said. “Fiber and power are the determining factors with regard to whether or not a data center can be developed in a particular location.”

Yet this isn’t the first of its kind in the area. In fact, there are quite a few data centers around Chicagoland. What sets this one apart? There are few in urban settings, like this one, and as technology continues to evolve, more of this kind are needed. But they’re not cheap, and though demand is greater than supply, it takes years of planning to get them out of the ground.

And while it’s also worth mentioning that these centers don’t create as many jobs compared to other, more labor-intensive facilities, the jobs are future facing—and higher paying. It’s estimated that artificial intelligence will eliminate a substantial number of manual jobs over the next decade, and data centers are part of the new economy. Technology has reduced the number of jobs, but it’s part of the broader societal shift.

The construction of this particular data center will support over 200 construction jobs and, once completed, over 70 full-time jobs in a variety of fields including data center engineers, electricians, tech support personnel, and operations.

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