By Ron Behm, Principal, and Jonathan Kohn, Principal, at Colliers International
The headlines of Chicago’s 1.3 billion square foot industrial market are often linked to the development and leasing activity in the I-80 and I-55 markets, where the lion’s share of the big box activity occurs. Here, big name tenants such as Wal-Mart, Michelin, and IKEA sign leases over 500,000 square feet and the construction projects are often close to one million square feet.
But the heart and soul of Chicago’s industrial market and what is actually a better barometer for its overall health is the O’Hare submarket. With an inventory of 140 million square feet, it is the largest of all 21 Chicago-area industrial submarkets. Just as the Chicago market as a whole is experiencing a far reaching recovery, the O’Hare market is leading the charge as evidenced by solid leasing activity, strong levels of absorption and a rapidly and dramatically shrinking inventory of sizeable blocks of space.
According to the 2014 year-end statistics, the O’Hare industrial market vacancy rate was under 6 percent, compared to 7.73 percent for the overall market, 9.27 percent and 10.56 percent along the I-80 and I-55 Corridors, respectively.
One of the significant trends within the O’Hare market, particularly since January 2014, is that companies are growing and expanding their existing footprints. These expansions are significant—representing large scale consolidations, expansions, and entire relocations.
Following is a sampling of the companies that have completed impressive real estate expansions during that one-year period:
• Wholesale Interiors leased 306,590 square feet from Prologis at 1010 Foster in Bensenville. The furniture company also has 260,000 square feet in another location. • BMAK Auctions, a new tenant in the market, leased 234,000 square feet from DCT at 777 Mark Street in Wood Dale. DCT had recently acquired the building from International Airport Centers. • CEVA Logistics leased 208,406 square feet from Panattoni at 1925 Busse in Elk Grove. This marked an expansion into a facility directly adjacent to CEVA’s existing building. Panattoni subsequently sold the building to Boston-based AEW Capital. • Channel Distribution leased two buildings totaling 286,000 square feet from Prologis at 950-990 Supreme and 699 Supreme in Bensenville. This was an expansion and relocation from Itasca where Channel had leased space for 20 years. • Power Solutions International, in an expansion of an existing 400,000-square-foot space it currently occupies in Wood Dale, leased 197,000 square feet from Hamilton Partners at 1465 Hamilton Parkway in Itasca. • Diversified Labeling Solutions leased 172,000 square feet from Hamilton Partners at 1285 Hamilton Parkway in Itasca. The company renewed and expanded its current 140,000-square-foot lease. • Glazer’s leased 171,000 square feet from ML Realty at 2801 Busse in Elk Grove, which was an expansion and relocation from 64,000 square feet in Franklin Park. • ABS Graphics leased 128,000 square feet from John Hancock at 900 Rohlwing Road in Itasca as the tenant expanded and relocated from Addison. • LSG Sky Chefs, in a notable Chicago expansion, completed a 130,000-square-foot build-to-suit for lease with International Airport Centers at 200 E. Touhy Avenue in Des Plaines. • NNR Logistics leased 119,000 square feet from Bridge Development at 2201 Lunt in Elk Grove Village. This was an expansion and relocation into one of Bridge’s two Elk Grove Village spec buildings that now have only 30,000 square feet of remaining available space.
Cumulatively, these 10 leases alone total more than 1.9 million square feet. Further, the completion of these leases has served to reduce the vacancy in the market from 8.38 percent at year-end 2013 to 5.98 percent at year-end 2014. First quarter O’Hare vacancy is estimated to remain just below 6.0 percent.
Consequently, this steady stream of expansion activity by businesses in O’Hare has significantly reduced the availability of large blocks of modern space (clear heights over 28′ and exterior docks) within the O’Hare market. As of March 2015, there are only two such facilities that can accommodate a user requiring more than 100,000 square feet, with a strong possibility of just one remaining by the end of April. As a comparison, there were eight such availabilities in the first quarter of 2014.
To address this shortage, four new developments have been planned for delivery in 2015 with other developers searching for new opportunities to acquire land around O’Hare:
• Liberty Property Trust is currently constructing a 235,000-square-foot building on Howard Avenue in Des Plaines. • DCT is underway on a 112,862-square-foot project on Arthur Avenue in Elk Grove Village. • Panattoni Development and LaSalle Investment will break ground this spring on two buildings totaling 290,925 square feet in Turnberry Business Park, Roselle. While this is within the Central DuPage market, it conveniently feeds the O’Hare market via the Elgin O’Hare Expressway. • Hamilton Partners plans to build a 184,000-square-foot building on County Line Road in Bensenville.
Lessons learned from the last cycle along with the most recent recovery indicate that these new projects will deliver a sustainable and healthy supply of larger spaces to the market. Assuming the availability of modern product continues to decrease and absorption remains steady, it is possible that we might see Class B rents rise at a greater pace than the O’Hare market has experienced in two decades. It is impressive to see this area thriving after the anemic conditions we had come to expect in the years following the recession. We anticipate that the slow and steady addition of modern, new facilities and the measured restraint of the development community will ensure that the area does not become overbuilt but rather, appropriately addresses a real need.