Throughout 2017 and 2018, industrial activity in the I-55 corridor was relatively flat. The situation is much different so far this year, with nearly 2 million square feet of absorption in the submarket last quarter alone—the greatest quarterly demand in more than three years.
What’s leading to this renewed interest? The primary drivers are twofold: existing users that have gone into expansion mode, as well as new, large users coming into the submarket in search of internet fulfillment centers, food-grade warehouses and third party logistics space.
“The I-55 corridor has been a hotbed for activity and demand during the first half of 2019,” said Jim Estus, principal, Chicago, of Colliers International. “But with land constraints limiting how much further the submarket can grow and the dramatic increase in construction costs, a lot of tenants witnessing all this activity move quickly.”
Case in point: Colliers is handling the leasing for the Fountain Square Commerce Center in Bolingbrook, Illinois. Bridge Development Partners acquired the site for more than $73 million last November and has since tapped PREMIER Design + Build Group, Cornerstone Architects, SPACECO and Structural Resources, Inc. to design and build out a 219,000-square-foot speculative warehouse on the last remaining parcel on the property.
“Fountain Square signed a 98,428-square-foot lease in two weeks—start to finish from the tour date. That’s just unheard of,” Estus said. “There are multiple tenants that are realizing that they need to move quickly or they lose the space to somebody else. This is really indicative of the market.”
Constructed of precast concrete and steel, Fountain Square Building 5 will have all of the features and amenities commonly found in modern industrial developments. That includes 32-foot clear height, 48 docks, two drive-in doors, parking for 30 trailers and 178 cars and an early suppression fast response (ESFR) sprinkler system.
“Tenants want Class A product ready to go, with high ceiling heights, ESFR sprinkler systems and trailer parking, and they want to move in quickly,” said Estus. “Bridge Development Partners was able to get the spaces at Fountain Square ready for occupancy almost like a model, ready-to-go space.”
According to Colliers data, net absorption in the I-55 corridor totaled 2.6 million square feet through the first half of the year. No other submarket has had higher year-over-year figures. This demand has thrust the vacancy rate down to 8.27 percent—nearly three percentage points below the 11.20 percent rate one year prior and the lowest rate recorded in the submarket since the third quarter of 2016.
“I’m tracking 37 prospects actively pursuing space; four prospects looking for 700,000 square feet and up, 11 prospects between 200,000 to 400,000 square feet, eight prospective users looking at 100,000 to 200,000 square feet and 14 prospects out touring up to 100,000 square feet,” Estus said. “That’s significant foot traffic.”
Seventeen new leases and lease expansions totaling 2.1 million square feet were signed between April and June, the I-55 corridor’s greatest quarterly new leasing volume in three years. The largest new lease of the quarter involved FedEx Corporation leasing the entire 469,920-square-foot building at 145 S. Pinnacle Drive in Romeoville, Illinois.
As for new construction, CT Realty Investors completed two spec developments in June—totaling 1.3 million square feet—at 55 Logistics Park in Romeoville. There are now six construction projects totaling 3.4 million square feet underway in the submarket, the largest amount of active development in the I-55 corridor since the first quarter of 2017. The largest construction start of Q2 was a 1.5-million-square-foot build-to-suit facility in Plainfield, Illinois that Seefried Industrial Properties is developing for liquor distributor Diageo North America.
Though the I-55 corridor has been a hotbed for activity and demand during the first half of 2019, land constraints will likely limit future expansion opportunities in the submarket. Ongoing speculative development may result in a brief increase to the area’s vacancy rate when the projects are delivered over the coming quarters, but tenant demand is expected to remain strong.