Chicago's Industrial Market Sees Unprecedented Surge in Subleasing Activity

In a remarkable turn, subleasing activity in Chicago's industrial market reached new heights as 2023 came to a close. Avison Young's report unveiled a substantial 40% increase in sublet availability, translating to a whopping 3.7 million square feet left vacant. Surprisingly, this vacancy figure represents 47% of all available industrial sublet space in the Chicago area.

Unveiling the Powerhouses of Sublet Leasing

The leasing landscape saw a robust 5.4 million square feet of sublet space taken up from Q1 2022 to mid-December 2023. Notably, the south Interstate-55 corridor emerged as a subleasing hotspot, claiming 42% of all sublet leases. Logistics, distribution, and parcel delivery companies played a dominant role, capturing 48% of the total sublet leases.

Insights from Avison Young's Experts

In a conversation with Adam Haefner and Kathleen Cavanaugh from Avison Young, the surge in industrial subleasing activity was explored. Haefner dismissed surprise at the increase, citing various factors such as post-COVID supply chain adjustments, a transportation industry slowdown, and heightened consumer demand for services over goods. Cavanaugh emphasized that the south I-55 corridor's appeal lies in its central location, access to major highways, and historical tightness in the market.

The Driving Forces Behind Subleasing Activity

Exploring the dominance of logistics, distribution, and parcel delivery companies in subleasing, Haefner pointed to the shifting demand from goods to services. With this shift, companies are resizing their supply chains, a trend expected to reverse as supply chain disruptions ease and inventories build up. Cavanaugh highlighted the cost-effectiveness, move-in readiness, and shorter lease terms as key factors driving subleasing activity in this sector.

Sublease Activity and Industrial Space Demand

Looking ahead, Haefner predicted continued sublease activity in 2024, driven by ongoing supply chain adjustments. However, the leasing outlook remains positive overall, with low vacancies expected to persist. Furthermore, the demand for industrial space is anticipated to stay high, propelled by growing inventories and overall economic growth, coupled with a decrease in new space deliveries in 2024.