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Logistics giant Prologis recently closed on its acquisition of competitor Duke Realty in a move to expand its footing in key U.S. industrial markets. One of those key markets is Chicago – in which Prologis expanded its footprint by nearly 22%. After the addition of 48 properties with more than 18.1 million square feet of space, the combined Duke-Prologis Chicago portfolio now exceeds 101.5 million square feet across 422 properties *

Key Submarkets

Duke Realty’s former properties acquired by Prologis are concentrated in three Chicago submarkets – O’Hare, South Suburban, and East-West Corridor. According to CompStak’s data, Prologis grew its footprint in those submarkets by 4%, 17%, and 30% respectively.

Between 2017 and 2022, average effective rents in the three submarkets showed steady growth. While industrial rents in Chicago overall increased 19.7%, they increased 29.4% in the O’Hare submarket and 33.5% in the East-West Corridor submarket. The South Suburban submarket experienced a slower rate of growth, increasing by 5.4% over the same period.

 

Average effective rents have risen to some of the highest levels in the region in the O’Hare submarket, where the lack of developable land restricts new supply, but new limited-access highway infrastructure and expanded cargo capacity at O’Hare have increased demand.

These growth trends are also evident in the spread between average starting rents of new leases and average current rents of existing tenants. While over the past 12 months, new tenants have paid nearly the same as existing tenants in the Chicago Market overall, average starting rents exceed current rents in both the East-West Corridor and O’Hare submarkets.

 

Notable Expirations

With Prologis’ Duke acquisitions in Chicago, the major industrial REIT inherited leases from notable tenants from Duke such as DHL, Sysco, UPS, Walgreens, and Wayfair as well as many major upcoming expirations. More than 21.0% of active leases in these former Duke properties will expire between now and December 2023. Another 15.3% of those leases will expire in 2024. These expirations include a 551,000-square-foot space occupied by Wholesale Interiors, who subleased the space from textbook supplier Follett in 2019. Another 216,594 square feet of space currently occupied by Acer – who expanded in 2019 – will expire in 2023.

 

Chicago Trends

Colliers reports that more than 80% of current industrial construction is speculative in Chicago. In fact, Duke Realty itself was part of the Chicago construction boom right up until its acquisition. But speculative industrial construction is showing signs of a cooldown nationwide as a result of concerns about the economy and rising cost of capital.  The Chicago market may face headwinds if the vacancy rate reverses course and these speculative projects are unable to secure tenants. 

Yet, the South Suburban submarket has desirable characteristics for large tenants, such as proximity to the railyards and the I-80/I-55 Interchange. According to CompStak’s data, a plurality of Prologis’ buildings are in the O’Hare submarket, and their smaller footprints may attract a diverse range of tenants. And in recent years, the East-West Corridor has become an ecommerce hot-spot for last-mile fulfillment.

How will Prologis’ acquisitions impact the industrial market nationwide? Are you interested in tracking Chicago and other major markets where Prologis expanded? Sign up with CompStak for more insights!

*Figures calculated by adding square footage from archived information about Duke Realty’s portfolio in Chicago to listed portfolio information from Prologis’ website (updated April 2021).

 

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