2022 was a record-breaking year for the sector, and all things considered, it’s looking like 2023 will be just fine.
Chicago Industrial Properties recently spoke with Mike Yungerman, Senior Vice President & General Manager of Opus Development Company, LLC, for an inside look at a few of the company’s most notable projects of this year—Chicago Logistic Service at Oakview Corporate Park and Tollway Corporate Center.
Chicago Logistic Service, a transportation company that specialized in office, computer, medical and sensitive equipment, tasked Opus to design and build an almost 50,000-square-foot building on the last remaining site in Oakview Corporate Park. The build-to-suit has 2,900 square feet of office space, with the remaining square footage designated for warehousing and the ability to expand by another 40,000 square feet. Chicago Logistic Service took occupancy in July 2022.
Yungerman said the Northwest Corridor, specifically Elgin, has had a high percentage of user-owners of space—hard to come by in today’s market—and because of the uptick in portfolio owners unwilling to sell their buildings, it’s been hard for user-owners to find those opportunities. Opus found this niche early and has built and sold several buildings in the park.
Simply, Elgin makes sense for Chicago Logistic Service, as well as for other companies looking to rent in proximity to O’Hare and Western Cook at a relatively lower cost.
The second project, Tollway Corporate Center in North Aurora, is the redevelopment of a small, executive golf course, and an adjacent piece of property that was owned by one of the building owners in the park. Opus combined the golf course with the smaller property, the latter serving as an access point through the property.
“We built an access road into the golf course for vehicles,” Yungerman explained, “as the only prior access point was through a residential neighborhood, which wasn’t suitable for users or the local community. The property was reassembled to bring the trucks through the former business park.”
Phase I, the 540,000-square-foot building on the eastern side of the golf course, broke ground in August 2021 and is scheduled to be delivered in a matter of weeks for occupancy by Midwest Warehouse in December. Phase II, the 100,000-square-foot building that is the former expansion land of the business owner that the land was purchased from, broke ground around the same time and will be 50% leased to Soligent Distribution to occupy in December, with the other 50% still available for lease.
There is one more site, adjacent to the 540,000-square-foot building, that can accommodate just over 400,000 square feet, which is expected to begin construction in 2023.
Both Phase I and Phase II of Tollway Corporate Center were leased before completion, which, according to Opus, is a common theme in the past year and a half, seeing the uptick in distribution users in Chicagoland and throughout the U.S.
When discussing “Chicagoland”, Wisconsin and Northwest Indiana must not be left out—both are included in the region from an economic (jobs, transportation, etc.) and industrial perspective. Opus has a 280,000-square-foot spec building delivering now at MTC in Kenosha, Wisc., that’s available for lease, and a recently purchased site in Merrillville, Ind., where they’ll soon break ground on another building of a similar size.
Clearly there’s no slowdown in leasing activity, especially concerning user-owners. Chicago has seen anywhere from 30 to 35 million square feet under construction at any time, a high percentage of project’s being spec by developers looking to build and lease it and collect the rent stream or sell it for profit. Because of this, there’s a lot of capital to invest in the market.
“Since availability of buildings and land are usually controlled by developers, it’s hard for companies that want their own building to find the opportunity,” Yungerman said. “Unless they’re putting a lot of capital into their building, many of those users don’t want to use their own balance sheet or real estate and would rather deploy that capital into their operations. They typically do lease the buildings themselves, and as they outgrow them, they reposition themselves and move on to another location.”
But occupiers/users that need space quickly need to act fast because the market today is tighter than it was. There’s less space to choose from, and despite the area’s hot streak of activity, many are wondering just how long it will continue.
According to Opus, 1H2022 was a continuation of trends seen in 2021. Many projects broke ground, but at the same time, the supply chain concerning the availability of construction was pent up, resulting in an unavailability of necessary items like precast, steel and concrete. Due to extended lead times on these essential building materials, 9–12-month builds were delayed to 12–18 month builds, and in some cases, even longer, causing inflation to rise in 2022, according to Opus.
“While demand continued from a user perspective, the interest rate environment started to climb quickly, resulting in uncertainty and freezing of the debt and capital market in the last few months that will bleed into 2023,” Yungerman said. “It’s more difficult to get a construction loan and find capital or equity to go forward, so it’s hard to underwrite and determine how to approach projects financially, which will lead to an eventual slowdown.”
