O’Hare Submarket: Strong Demand for Industrial Sales, Leasing
January 2025 — Brown Commercial’s 2025 Outlook Notes Top 5 Factors Driving Chicago Industrial
Positive demand drivers for industrial sales and leasing, and a shortage of small to mid-sized space is shaping Chicago’s O’Hare industrial sales and leasing, according to Brown Commercial Group’s 2025 Market Outlook. Here are the Top 5 Trends driving the market:
Industrial lease rates to remain strong in 2025. O’Hare’s industrial market should experience steady leasing activity, positive net absorption and stable or declining vacancy rates across its submarkets in 2025. The market has recorded significant rent growth since 2018-2019, with gross rents for buildings of 50,000 square feet and smaller moving from $8 to $9 per square foot (psf) to $12 to $14 in submarkets such as O’Hare. Now that many leases with lower rates have moved through renewal, rents are stabilizing at the higher rates and rent escalations are moderating as well. Those lease rates are higher than rates in larger buildings, were rents average close to $11 psf, a 20% increase from the overall Chicago market, according to CoStar.
Industrial sale pricing is also leveling off and is trending toward $90 to $110 psf versus the $50 to $70 psf range recorded before the pandemic. While sales slowed notably over the past two years with the rise in interest rates, transactions are expected to increase as rates move downward.
While interest rates started to slowly drop in the last half of 2024, there is widespread consensus that rates will remain “higher for longer.” While some companies are now accepting the higher rates as the new normal, others may scale back or delay decisions until rates drop further. Regardless, interest rates will continue to be a critical indicator to watch throughout 2025
Manufacturing and transportation sectors will see gains. U.S. manufacturing has seen significant growth in recent years due to the CHIPS and Science Act and that momentum is expected to continue into 2025. “With the new administration’s focus on domestic production and onshoring, we expect to see growth in Chicago’s manufacturing sector,” said Candace Scurto, a broker with Brown Commercial Group.
Also, an increase in oil production should provide a boost to the transportation sector, which has struggled recently with rising energy prices. This will lead to more demand for industrial space, including outdoor storage.
Election certainty will spur activity. With the completion of the presidential election cycle, businesses are expected to move ahead with more certainty on planning, relocations and expansions. Many tenants that were waiting on the sidelines due to the political uncertainty are now going to start making decisions, which will spur industrial sales and leasing activity.
“Tenants that have been waiting on the sidelines now have a clearer path forward and can make decisions about space usage and whether they want to expand their operations,” said Mason Hezner, Vice President of Brown Commercial Group. “We think Chicago’s dynamic industrial market, with its ties to O’Hare Airport and access to strong labor pools, will benefit from these dynamics.”
Smaller spaces will continue to drive the market. Many submarkets, including O’Hare, have a limited amount of available industrial space under 50,000 square feet for sale. This has led to companies delaying new acquisitions. Brown Commercial expects space availability to increase moderately in 2025. Smaller leases should be more available.
According to research from Colliers, the largest share of new leasing transactions during Q3 2024 was in the 20,000 to 60,000-square-foot range. Those leases totaled 1.6 million square feet and accounted for nearly 30 percent of all new leasing activity that quarter.
Transportation-oriented locations remain a draw. Tenants will continue to gravitate toward space in locations that serve major transportation hubs such as O’Hare International Airport. The O’Hare submarket is experiencing strong industrial demand and saw its vacancy rate drop 20 basis points to 2.67 in Q3 2024, according to Colliers. New leasing activity totaled nearly 885,000 square feet in the quarter. The submarket should remain competitive, as tenants seek space near the airport and the surrounding transportation network.