Finding The Opportunity Across Midwest Industrial Markets

However, as consumer demand cooled and shifted away from goods, coupled with elevated inflation levels and high interest rates, the industrial market began to moderate in 2023 and 2024. This recalibration of the market has led to increasing vacancy rates, softer rent growth, and demand levels reverting to pre-pandemic levels in some cases. 

Although leasing activity has decelerated across all regions over the last few quarters, deal volume in the Midwest has remained on par with pre-pandemic averages (2010-2019), which were considered normal growth years during an extended expansionary cycle. The Midwest boasts affordable labor for occupiers, ample land for development, and excellent highway infrastructure. Steady leasing activity should persist which is projected to help fuel over 78 million square feet (msf) of net absorption from 2024 to 2025. This will keep vacancy historically healthy with the Midwest rate peaking at just 5.4% by the close of 2024, the lowest of any region in the near future. This will be led by healthy 2024 absorption figures in Chicago, Columbus, Kansas City and Minneapolis. Only the Southeast is anticipated to record stronger rent growth over the next few years, which helps maintain the Midwest's placement as a premier region for investment. 

The eight major markets across the Midwest region showed signs of new leasing resilience, recording activity of 18.8 msf in Q1 2024. Though this does represent a 28.9% decrease year-over-year (YOY), it can largely be attributed to a slowdown in big-box leasing compared to robust activity in that size segment over the last several years. However, the Midwest markets show several bright spots and key opportunities including: 

Big-box Leasing Makes the Headlines but Small and Mid-sized Leases Seal the Deal

From 2019 through 2023, an average of 493 new leases in the 25,000 square feet (sf) and under range were signed in the first quarter of the year. In Q1 2024, 434 new leases in this size range were signed, a decline of 12.0% from the five-year average. However, this decline is significantly lower than that of the other size ranges as leasing velocity in the smaller size range has remained more on pace with long-term averages. 

Flight to Quality Continues with Newly Delivered Space

Over-one third (36.0%) of Midwest new leasing activity in Q1 2024 was for space in buildings that were built since 2020, further perpetuating a flight to quality across the sector. With a record amount of new construction over the last several years, it continues to be vital that tenant demand match this recently added supply.  

New Leases on the Horizon as Tenants Engage the Market

With more than 600 tenants active in the market throughout the Midwest, there is new leasing on the horizon that will drive down and bolster occupancy levels within recently completed supply. 

Midwest Market-By-Market Analysis

The Midwest had several hotspots that drove new leasing activity in the first quarter of 2024. Hover over the interactive hot spots for further insight on the map below.