The I-39 Corridor in northern Illinois is rapidly becoming a prime location for build-to-suit activity.
Last year, Woodward Inc., an independent designer, manufacturer and service provider of control solutions for the aerospace and energy markets, announced plans to establish a second campus in the greater-Rockford area for its aircraft turbine systems business. The new campus, located in Loves Park, is on a 60-acre site, and initial site development will include production and office facilities of approximately 300,000 square feet.
And in July, Nippon Sharyo Ltd., which makes electric commuter and high-speed railcars, opened a new 465,000-square-foot manufacturing facility in Rochelle. The firm also is building a second 365,000-square-foot plant on 22 acres that will open in 2014, according to Jim Planey, principal of Lee & Associates of Illinois LLC.
Planey said he thinks this type of build-to-suit activity will increase because the I-39 Corridor attracts a fair amount of manufacturers, but quality product is scarce.
“There’s very little Class A space or modern buildings available because of the lack of any speculative construction over the last five or six years,” he said. “It’s a very thin market though, which is why people aren’t running out there building spec. Therefore, if you want to be in the I-39 Corridor, you need to look more at build-to-suits.”
Mark Goode, principal of Venture One Real Estate LLC, agreed there is a lack of vacant, single-story modern facilities, so most of the expansion in the I-39 Corridor has been through build-to-suits.
Despite the lack of modern buildings, Goode said he thinks the I-39 Corridor has a balanced supply of space.
“We don’t have an oversupply of space and we don’t have an undersupply of space,” he said. “I think we have a decent amount of space available that can attract users, but also I believe that there are good land sites available all throughout the corridor that will provide for build-to-suit opportunities quickly and at a reasonable cost.”
The I-39 Corridor ended 2012 with a vacancy rate of 3.2 percent and a total net absorption of 50,898 square feet, according to market statistics from Jones Lang LaSalle.
“The I-39 Corridor currently isn’t as overbuilt as some of the other markets,” said Kelly Gray, vice president at Jones Lang LaSalle. “I would say existing vacancy isn’t the real problem. It’s just a low level of absorption. It’s not a high velocity market. However, I think that a company looking to do a build-to-suit could really find the air, the rail and the highway connectivity that they need for their operations.”
Goode added that he sees the possibility for speculative construction in the area.
“There could be some spec development in the future,” he said. “There hasn’t been in the past, but as we get more demand and we use up our supply, I think that you will see some spec development.”
Good said Venture One has plans to build a 200,000-square-foot spec building at the 300-acre Rock 39 industrial park at I-39 and Baxter Road.
Planey, however, said it is difficult to find developers willing to build a spec building in the I-39 Corridor.
“Rochelle has 4.2 million square feet of Class A space and we have 0 vacancy. Sounds great, but I can’t get a developer to come out and build a spec building because the market is too thin,” he said. “We’re starting to see spec be built now in the really strong markets, but I-39 is not that strong of a market to have any spec. I don’t know when we’d see spec again. I think developers have learned not to get too far ahead of the curve in the market.”
While speculative development may be hard to come by in the I-39 Corridor, a number of businesses find that the area does have its advantages.
Food companies in particular find the I-39 Corridor’s central location to be attractive. Del Monte this year, for example, decided to expand by 104,000 square feet at 501 Steward Road in Rochelle. Bay Valley Foods also has 925,000 square feet in Rochelle, according to Planey.
“We tend to have good warehousing absorption for food companies that process in the Midwest but want a warehouse somewhere more centrally located,” Planey said.
Manufacturers like Woodward and Nippon Sharyo also prefer being in a rural location with a solid labor market, according to Planey.
“Rockford to this day has a lot of skilled labor that will readily drive 30 to 40 miles per day for good work,” Planey said.
Goode, meanwhile, has placed his bets on the I-39 Corridor being an ideal location for future growth in the Chicago area, traditionally the hub of Midwest activity.
“We have reasonably priced land, we’re very competitive on the construction side, and institutional investors have made a commitment to invest in the region, which gives us good cap rates and allows us to be very competitive on rental rates,” he said.
Logistically, Goode points to the I-39 Corridor’s transportation benefits. It has a geographical advantage of being a toll-free north-south expressway from Madison, Wis., to Bloomington, Ill., and it forms crossroads with several large east-west highways, such as I-88 and I-80.
Goode said companies also have the support of the communities within the I-39 Corridor.
“I think the other reason the I-39 Corridor has been very successful is that the communities that have business parks in the I-39 Corridor are pro development,” he said. “They’re very interested in working with the developers and the companies to get buildings built efficiently in their regions.”