Chicagoland Industrial Market Update – June 4, 2025

From Frenzy to Fundamentals: The Industrial Market Rebalances

After more than a decade of outsized growth, Chicagoland’s industrial market, like much of the U.S., is entering a period of rebalancing. The COVID-era boom fueled by e-commerce, supply chain shocks, and reshoring optimism led to a historic construction spree. But as of mid-2025, much of that new supply is sitting vacant, and both tenants and capital are proceeding with caution.

Supply Glut Sets In

According to Bisnow, more than half of all warehouse space delivered in 2023 and 2024 across the U.S. remains vacant. National industrial vacancy has risen to 6.4%, a sharp increase from sub-4% levels just two years ago.

In Chicagoland, conditions mirror the national story with new speculative bulk product struggling to lease, particularly in outlying areas such as southern Lake County, western Kane County, and parts of Will County. Developers, facing higher interest rates and weaker tenant activity, have scaled back: industrial starts in metro Chicago are down more than 50% year-over-year.

Real Deal: Darwin Realty’s $100M Refinance Shows Where Capital Still Flows

Despite rising vacancies in the speculative segment, core assets remain liquid and in demand. Case in point: Darwin Realty secured a $100 million refinancing package in May 2025 for a five-building, fully leased industrial portfolio in West Chicago and Carol Stream. Spanning over 1 million square feet, the portfolio features long-term leases with national tenants, institutional-grade specs, and strong rent rolls.

This deal reflects the market’s growing preference for stabilized, infill assets in proven locations, especially when paired with tenant credit and irreplaceable logistics infrastructure.

Rent Growth Flattens, Concessions Rise

As supply overtakes demand, rent growth has leveled off across Chicagoland. Asking rates in core submarkets like O’Hare, I-55, and I-88 remain relatively stable, but landlords are now offering more generous concession packages, including free rent, tenant improvements, and flexible terms, to secure commitments.

In suburban fringe markets, where speculative projects flooded the market in 2022–2023, effective rents have started to erode as competition heats up to backfill large blocks of space.

Tenants Gain Leverage, Get Strategic

The tenant landscape has shifted from urgency to optionality. Major occupiers are taking longer to finalize deals, sending out more RFIs, and demanding flexibility on lease lengths. Build-to-suit is back in favor, especially for tenants with complex logistics or manufacturing needs.

In the Chicago market, third-party logistics firms, cold storage users, and specialized manufacturers continue to anchor demand, but the days of leasing “just in case” are over.

E-Commerce Normalizes; Manufacturing Adds Depth

E-commerce is still a long-term growth engine, but it’s no longer turbo-charged. Growth has returned to 6–8% annually, in line with historical trends, according to Statista. Retailers are consolidating their distribution networks, focusing on fewer, better-located facilities rather than expanding aggressively.

Meanwhile, the onshoring and advanced manufacturing trend is real, especially in states with strong workforce bases and infrastructure. In Illinois, this has yet to significantly impact spec warehouse absorption, but interest in power-enabled, rail-connected land sites is rising, especially from EV suppliers and OEMs.

Submarket Snapshot: Winners and Watch Zones

Holding Strong:

• O’Hare: Still tight on vacancy due to irreplaceable access and limited land.

• I-55 Corridor: Stabilizing with strong tenant mix and transportation assets.

• West Cook & DuPage: Infill submarkets like Elk Grove Village, Bensenville, and Cicero continue to attract tenants priced out of core areas.

Softening Fast:

• Far South Suburbs (Will County): Heavy new supply with limited absorption.

• Far Northwest (McHenry, Boone): User interest lags speculative construction.

• Southern Wisconsin (Kenosha, Pleasant Prairie): Seeing longer lease-up timelines.

Capital Markets Outlook: Income Matters More Than Hype

Industrial remains the preferred commercial real estate asset class for many institutional investors, but with a catch. In 2025, the focus has shifted from growth to yield. Investors are seeking fully leased, well-located assets with durable income streams. Value-add plays and speculative repositionings face scrutiny in a high-interest rate environment.

Deals like Darwin’s refinancing illustrate how core product continues to command attention, while vacant spec buildings remain illiquid.

What’s Ahead for 2025?

• Vacancy likely to peak late this year or early 2026 as absorption slowly catches up to deliveries.

• Rent growth to remain flat, with effective rents under pressure in non-core areas.

• New construction will stay muted as lenders remain conservative and developers rework underwriting.

Conclusion: A Rationalization, Not a Retreat

The Chicagoland industrial market is correcting, not collapsing. The days of automatic lease-up and double-digit rent hikes are behind us, but real demand drivers remain: infill logistics, reshoring, population density, and strategic location.

The next cycle will reward discipline, not velocity. For landlords, investors, and occupiers, the takeaway is clear: location, tenant quality, and building specs are more important than ever.

If you would like a further in-depth discussion on Chicago’s Industrial Market, please contact our team of Chicago commercial real estate brokers.