Watch out Chicago. The Interstate-55 Corridor is coming in fast and it’s bringing in loads of activity—causing other submarkets to swerve to the side. Meanwhile, large companies are pulling over to see how they can settle in.
There’s a reason why the corridor has been a big topic of conversation in today’s market— Industrial experts are seeing high demand for this location with various tenants continuing to look for spaces.
Local and out of town investors keep pouring in, according to Patrick Shannon, vice president of acquisitions at ML Realty Partners’ Chicago office, who said the firm continues to see the I-55 and 355 Corridor as a real safe haven for long-term Class A real estate investments.
“I-55 and 355 have really been resilient in the downturn and continues to attract all over nationally as a place for safe, long-term investment in the industrial sector,” he said.
Shannon noted that I-55 has so much space to absorb that it stands alone on its own submarket that continues to drive demand for those, which continue to be here, with access to 394.
Today, the interstate remains a true Class A, institutional grade, core asset class with the majority of its facilities consisting of distribution warehouses, light manufacturing, and a variety of food occupiers.
Mike Yungerman, vice president of industrial at Opus Development Company, L.L.C, said overall lease rates in I-55 are trending up due to a low vacancy trends, higher rising construction costs, and the overall demand is creating a lack of available space.
Because of this, he said, the interstate is now an infill market since there aren’t many available sites for speculative development so developers are finding opportunities in smaller-sized spaces in the corridor.
However, the good news is that vacancy rates for the market have been significantly low for the third consecutive quarter.
Shannon said demand has proven to keep in place with absorption by not letting vacancy rates climb. He also doesn’t suspect those rates to escalate any time soon.
Recently, speculative development and build-to-suits projects are a growing trend in the area. Speculative has been recovering quicker than any number in the submarket, according to Shannon.
“Product on I-55 in the east side has been a game changer, allowing people to find a new area to the corridor,” he said.
Meanwhile, CAP rates are getting lower and lower and Shannon believes this will continue for the next five to six months.
Occupiers and tenants already settled in I-55 are staying put as we’re seeing the trend of leases getting extended.
Shannon mentioned that LG Electronics is very committed to the market. ML Realty recently renewed it for a long-term 377,630-square-foot lease extension.
Other trends in the market Yungerman is seeing include a higher amount of trailer, car parking and security on site. He sees that tenants are requiring secure sites for their distribution, while Shannon is seeing a desire for newer and better Class A facilities.
“The market continues to prove itself that state of the market buildings attract higher clear height, better access, wider columns, all new features that properties have that continue to attract the occupiers of space to continue to prove their efficiency,” he continued.
According to a Colliers report, some of the current build-to-suits under construction in the corridor as of June 2015 include a 188,166-square-foot facility for Arista Foods, and a 200,000-square-foot facility for West Liberty Foods. Current spec developments include a 58,780-square-foot vacant property.
Yungerman said Opus has a two-building speculative development in Paragon Business Park (pictured above)— one of which is 121,236 square feet and the other that’s 133,803 square feet on a 7 ¼-acre site that’s nearly completed. He said it will be one of the only projects left in the cycle.
“I think I-55 investors in the market feel good about what they’re creating,” Yungerman said, adding that he thinks investors are bullish in the market.
As for ML Realty, Shannon said the firm recently completed a 121,800-square-foot speculative facility in Lockport, Illinois, in the Heritage Crossing Business Park just five miles south of the corridor. Additionally, the firm also completed a 512,265-square-foot spec facility, which he mentioned is the largest facility available along the 355 corridor.
When asked about the remainder of the year, Shannon said he sees a continued and developed 355 and I-55.
“I know there are several landslides at play for new facilities,” he said, adding that he sees this continued absorption and continued new construction at least for the remainder of the year.
