Chicago’s Fox Valley industrial submarket has traditionally been the domain of long-term users, with the occasional build-to-suit project popping up now and then. But demand for Class A warehouses is so fervent that spec projects are going up even here as well, accounting for half of the space developed in the area last year.
There are currently six buildings under construction in the Fox Valley submarket, according to research from Colliers International | Chicago. Of these, five are being built on a speculative basis, for a combined 622,246 square feet.
The largest active development is Scannell Properties’ 250,000-square-foot spec project at 555 Innovation Drive in West Chicago, Illinois’ DuPage Business Center. The building will have 32-foot clear height, 30 dock positions, four drive-in doors and parking for 207 automobiles and 70 trailers. Midwest Industrial Funds is also building a project in West Chicago while Morgan Realty Partners and Cratos Industrial Properties each have projects underway in Batavia, Illinois.
This was part of a larger trend seen across the entirety of the Chicago MSA last year. Colliers figures show that developers delivered a record 52 spec projects totaling more than 15 million square feet during 2019, more than any other year during this cycle. The fourth quarter alone saw 4.7 million square feet of speculative deliveries—the most new product to come online in one quarter since 2017.
In Fox Valley, 822,131 square feet of cumulative spec space ratcheted up the vacancy rate to 5.82 percent, a 97-basis-point rise. Despite this increase, the vacancy rate fared much better than the 7.58 percent that the submarket recorded at the end of 2017.
While new spec space had a hand in elevating vacancy, it couldn’t dampen the area’s total net absorption last year. The Fox Valley submarket absorbed 1.2 million square feet of industrial space in 2019—the largest annual absorption in the submarket since records have been kept. Two build-to-suit developments totaling 822,000 square feet aided this absorption, along with high leasing volume.
New leases in the Fox Valley area totaled 1 million square feet in 2019—the largest annual tally since the submarket posted 1.2 million square feet in 2014. Home furniture provider, Convenience Concepts, signed the area’s largest new lease, taking 286,622 square feet at 1717 W. Harvester Road in West Chicago.
Investors have taken notice of the activity in the Fox Valley submarket. The Blackstone Group snapped up more than 2 million square feet of space during two separate portfolio acquisitions last year. Colony Capital acquired another 813,728 square feet of space in a portfolio sale. Others who have bought industrial space in the area over the past year include New Mountain Capital and Angelo, Gordon & Co.
Both the spec development and investment sales activity in 2019 signal a transformation occurring in the Fox Valley submarket. Moving forward, expect institutional ownership and modern Class A warehouses to attract a tenant profile that in the past may have never even considered the submarket.