Abstract

Chicago experienced strong leasing in the last half of 2025, especially big box logistics, with five million+ SF leases signed. Quarterly absorption surged to its highest level since 2023 at 7 million SF. Overall vacancy remained at 6.3%, steady throughout the year and in line with long term averages.

Chicago

ECONOMY

• In an effort to provide a more favorable rate environment for businesses and consumers, the Fed reduced the federal funds rate by 25 basis points (bps) in December. This brings the rate to 3.5%-3.75% following two previous cuts in September and October.

• Gross domestic product (GDP) accelerated in the second half of 2025, driven by services spending, AI investment and a rebound in durable goods spending.

• Early fourth quarter retail sales showed improvement over weaker third quarter sales, despite threat of inflation and costs passed on through changing tariff policy.

• Looking to 2026, business investment tax incentives will give companies the boost they need to increase domestic investment. Consumers also benefit from larger personal tax refunds, which is predicted to increase consumer spending.

• Realizing significant economic benefits from these tax incentives will depend on corporate confidence in the economy, financial markets, and policy environment as well as consumers’ capacity to spend versus save.

VACANCY

• Chicago industrial market vacancy ended the year right where it began – at 6.3%. The market has maintained vacancy between 6.2-6.3% for six out of the last eight quarters, exactly in line with the long-term average.

• Year-over-year (YOY) vacancy was only 10 bps higher – a nominal change considering overall market inventory has grown 0.75% in the same time frame.

• Comparably, national vacancy has held at 7.9% for the last six months.

• Two-thirds of Chicago submarkets saw vacancy either hold or decline quarter-over-quarter (QOQ), with an average change of -24 bps.

• The I-57 Corridor submarket saw the greatest decline of 200 bps QOQ in Q4 2025, dropping from 6% to 4% vacancy – largely aided by the absorption of 757,000 square feet (SF) leased by Peopleworks in Matteson (owned by Crow Holdings). This was also the largest lease for the submarket in 2025.

• Severe vacancy swings have become less likely in Chicago due to moderation in speculative development as well as healthy absorption of existing product, particularly in the big box sectors of the market.

• Restrained construction throughout 2025 allowed tenants to absorb most of the bulk speculative space that has delivered since 2023, with the vast majority of new construction over 750,000 SF left clustered in the SE Wisconsin submarket.

NET ABSORPTION

• Chicago closed the year with its strongest period of quarterly net absorption since Q3 2023: nearly 7 million (M) SF of newly occupied space in the market.

• The two largest move-ins were by RJW (1.2M SF leased in NorthPoint’s Third Coast Global Logistics Hub in Joliet) and Peopleworks (750,000 SF leased from Crow Holdings in Matteson).

• The uptick in absorption brings Chicago’s total annual absorption to 11.3M SF, tempered somewhat by low 2nd and 3rd quarters (800,000 SF and 1.2M SF). Although Chicago has been experiencing a prolonged period of lower absorption compared to historical averages, the market proves its consistency with the rarity of negative net absorption quarters – only two in more than ten years.

• Demand remains heavily influenced by shifting trade policy and conflicting economic signals – companies are taking their time to thoroughly evaluate expansion and leasing decisions.

• National absorption similarly saw a rebound closing 2025, with more than 70% of markets reporting positive net absorption. Total national annual absorption remains moderated at about one-third of its most recent historical peak at year end 2021 (70M SF in 2025 vs. 180M SF in 2021).

BULK PRODUCT LIMITED

• Tenants snapped up the last available speculative big box facilities in Chicago over the course of 2025. Five leases over 750,000 SF were signed and commenced/absorbed, greatly reducing bulk availability in Chicago, particularly in the I-80, I-57 and I-55 Corridor submarkets.

• Large availabilities in Chicago (over 750,000 SF) are now a varied inventory consisting mostly of manufacturing, and second generation Class A/B buildings – rather than being dominated by new construction.

SUBLEASING

• After nearly doubling between 2023 and 2024, Chicago sublease inventory declined to its lowest volume in more than a year: 10.7M SF as of Q4 2025. Sublease space hit an all-time high volume at 11.7M SF available in Q3 2024.

• Subleasing velocity slowed in Q4 2025 at less than 300,000 SF of transactions, but a total of 2.2M SF of subleases were signed in 2025 – representing more than 5% of total leasing volume.

• The total amount of sublease inventory remains high compared to the long-term average of 5.6M SF. The current available sublease volume represents 1.5% of total market inventory and contributed a steady portion of leasing activity in 2025.

CONSTRUCTION

• Total construction volume in Chicago declined QOQ from 12.7M SF in Q3 to 10.7M SF in Q4, when the market saw 4.5M SF of new supply deliver and only 1.8M SF break ground.

• New construction starts saw an increase YOY – nearly 2M SF in Q4 compared to less than 500,000 SF of starts at year end 2024.

• The balance of available speculative construction and build-to-suit (BTS)/pre-leased space has shifted once again for Chicago with spec space in the minority, due in large part to advance leasing of multiple big box facilities that recently delivered or are nearly complete.

• Only 4.6M SF of active construction is available for lease. The remaining 6M SF is off market – BTS or speculative construction that is already leased but has yet to deliver.

• There are currently no speculative buildings more than 1M SF under construction in Chicago and only two larger than 750,000 SF – both of which have seen high levels of activity from large tenants in the market and are likely to lease up in 2026.

• Build-to-suit transactions surged in late 2025: two undisclosed tenants signed a total of 2.7M SF at Elion Logistics Park 55 in Wilmington (I-80 Corridor) and Goodyear signed on for 1.3M SF in Dekalb with Mohr Partners (Fox Valley/Dekalb Submarket).

• These projects will contribute nearly 4M SF of a total 8.7M SF of buildto-space that will be underway in early 2026.

• The I-55 Corridor continues to lead the market with more than 3M SF of active construction, including two big box facilities totaling 2M SF in Plainfield (both pre-leased/BTS).

• Though the recent Fed rate cuts may translate to lower debt costs for developers looking to build, there is not a consistent correlation between historical rate cuts by the Fed and national construction volume. A better indicator of whether developers will invest in Chicago would be continued stability in vacancy and a strengthening outlook for tenant demand into 2026.

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