IllinoisIndustrial A tale of two submarkets: The I-80 and I-55 corridors offer contrary messages Matt Baker February 10, 2020 Share on Facebook Share on Twitter Share on LinkedIn Share via email Throughout this cycle, new construction of Class A industrial space has progressed apace, driven by high tenant demand. Though there was above-average absorption throughout the Chicago area last year, it’s two largest spec submarkets—the I-80 and I-55 corridors—presented clashing prospects. Over the past decade, new industrial deliveries in Chicago have added up to 120 million square feet. In 2019 alone, according to Avison Young research, 18.8 million square feet of new product came to market. Last year’s 17.5 million square feet of absorption was well ahead of the already impressive 12.2 million square feet that the metro averages yearly. It’s hard to expect a dip in either deliveries or leasing across the Chicago market in 2020. Those reading the tea leaves in the data of these big box submarkets, however, are receiving competing messages about the overall state of the market. There were less then 600,000 square feet of new product under construction during Q4 2019, according to Avison Young research, down from 4.2 million square feet in the first quarter of last year. Year-over-year data shows that construction really is slowing significantly in the I-80 submarket, as there were 3.5 million square feet of new projects under construction at the end of 2018. In fact, there were no new projects delivered in the I-80 corridor last quarter, the first such occurrence since Q2 2015. Developers seem to be cautious about overbuilding here, even as the 5.5 million square feet of net absorption in 2019 nearly matched the levels seen in 2018. This has helped lead to a drop in vacancy throughout the year, as the rate fell from 11.3 percent in Q1 to 10.5 percent in Q4. Fundamentals in the I-55 corridor paint a different picture. Year-over-year vacancy was an improvement with the 10.1 percent of last quarter comparing favorably with the 11.1 percent one year prior. However, that figure is on the rise, up from the 9.3 percent of the third quarter. This increase in the vacancy rate is tied to the negative 835,479 square feet of absorption that the submarket suffered in Q4 2019—despite having no new deliveries during the quarter. Avison Young data shows that there are currently seven buildings totaling 3.3 million square feet now under construction in the I-55 corridor. “An historical look at the top construction markets in Chicago shows that I-80 is in balance and is supporting new deliveries at a measured pace, while I-55 warrants a careful look heading through 2020,” said Adam Haefner, a principal in Avison Young’s Chicago office. “Although the vacancy rate is still historically low for the I-55 submarket, it has the highest level of construction underway, with absorption lagging behind, which is a concern.” In contrasting the I-80 and I-55 corridors, the level of supply that each submarket has on hand is another telling statistic. The I-80 corridor has 11.5 million square feet of space available; it’s annual absorption of 3.4 million square equates to a nearly three-year supply. The 2.3 million square feet of annual absorption and 14.4 million square feet of inventory in the I-55 corridor, on the other hand, equates to a six-year supply. “The market is closely watching the I-55 corridor to see if leasing activity will start to make a dent in the available space,” said Haefner. “This is important for the Chicago market as well as the investment community that has been so active in buying modern distribution space in recent years.” Three of the heftiest buildings now under construction are in the I-55 corridor. The largest, a 1.5-million-square-foot development by Seefried Industrial Properties in Plainfield, is a build-to-suit that Diageo North America will soon take occupancy of. The others, however, are speculative developments. Crow Holding is erecting a 573,758-square-foot, cross-docked warehouse at 775 Veterans Parkway in Bolingbrook, part of a planned four-building development. ML Realty Partners is now putting up a 40-foot clear, cross-docked building at 14532 S. Gougar Road in Lockport totaling 542,944 square feet. That said, two of the largest leases last quarter were also in the I-55 corridor. RJW Logistics took 543,780 square feet at 20100 Renwick Road in Romeoville. Geodis leased 400,400 square feet, also in Romeoville, at 901-1001 W. Bluff Road. These pale to some of the monster leases last year, as Amazon and Google each took more than 1 million square feet. Both of those leases were in the I-80 corridor.