By Tim Thompson, executive vice president and managing director of HSA Commercial Real Estate’s Industrial Brokerage Division
With strong demand for new, Class-A industrial product throughout Chicagoland, Lake County’s plummeting vacancy rate indicates that it is a prime target for significant growth over the next several years.
In terms of size and available buildings, the 47-million-square-foot northern Lake County industrial market is as tight as any Chicago submarket such as Central DuPage, I-55 and I-88. The vacancy rate is roughly 8 percent, down from 10 percent a year ago and from almost 13 percent in the fourth quarter of 2010. The vacancy rate is 8.3 percent for the 1.1 billion-square-foot industrial market throughout Chicagoland, which means that Lake County is keeping pace with the rest of the region.
The northern Lake County industrial market has limited room to grow due to the lack of available land for new industrial development. The industrial corridor there is primarily composed of second- and third-generation warehouse buildings that don’t have the efficient, high-cube facility design that modern tenants’ desire. However, with a burst of new leasing activity driving vacancy rates to historic lows, development is certainly on the rise in northern Lake County for the first time in a long time.
Much of this leasing activity has been confined to Waukegan, Libertyville, Gurnee and other suburbs north of Illinois Route 60, where several users have signed leases of 100,000 square feet or larger. Unlike the more developed and mature market to the south, the area north of Route 60 has seen more new construction in recent years, attracting larger users that are looking for top-tier space.
Because of the recent absorption, HSA Commercial, along with our partners Great Point Investors LLC, recently developed a 218,500-square-foot speculative facility in Waukegan. The construction of this facility, Delany Commerce Center, was significant for the market, as the building was the first Class-A, 30-foot clear industrial distribution center built in Lake County since 2005. To attract a wider range of users, the building can be divided into several smaller spaces of 32,500 square feet, but it is also capable of accommodating much larger tenants in the first building or a proposed 10.6-acre second phase.
The strategy plays to attracting small and mid-size businesses based in Lake County from a variety of key industries including packaging, food, technology, pharmaceuticals, and household products. Many of these target business owners either reside in or pull labor from Lake County and northern Cook County and want to have a short commute to work for themselves and their employees. Since these executives enjoy the quality of life that Lake County offers, with its abundant recreational activities and scenic forest preserves, locating elsewhere is typically out of the question.
Despite the demand for new facilities, development deals in Lake County are challenging to initiate due to the lack of developable open land. South of Route 60, the dense and mature industrial areas are largely populated with owner-occupied facilities with larger office components. Though land is also scarce north of Route 60, this area is the more likely target for growth over the next few years given the opportunity for business owners to tap into the stable, diverse labor base that areas like Waukegan have to offer. Businesses are also looking further east to avoid tolls, which is part of the reason why Highway 41 now parallels Interstate 94 in terms of truck traffic.
Besides HSA, a few other firms have managed to initiate significant new projects in Lake County that will help alleviate some of the pent-up demand. A developer has begun work on a two-building project in Libertyville, and farther north in Antioch, a second developer recently broke ground on a large single-building office / warehouse facility as well.
All of these new projects are entering a favorable market, and current data suggests that the market has enough depth to absorb them. My hunch is that Lake County will continue to evolve as company owners vacate older obsolete facilities in favor of new, Class-A space that is better suited for their modern warehouse or manufacturing businesses.
Tim Thompson is executive vice president and managing director of HSA Commercial Real Estate’s Industrial Brokerage Division. In the last 10 years, he has played a major role in HSA’s development of over 5 million square feet of new industrial product in the Chicago metropolitan area, identifying development sites and overseeing the leasing teams that market the finished product.
Since joining HSA Mr. Thompson has represented landlords and tenants in negotiating hundreds of industrial lease and sale transactions valued at over $700 million. In addition he has actively participated in the acquisition and disposition of investment grade properties in excess of $200 million.
Mr. Thompson has been honored by the CoStar Group’s Power Broker Award, named one of the top Chicago Industrial Brokers by transaction volume by Commercial Forum and was nominated for Chicago Industrial Broker of the Year.
Prior to joining HSA, Mr. Thompson served as Executive Director of Insignia/ESG’s Chicago Industrial Services Group. He is a former President of the Association of Industrial Real Estate Brokers (AIRE) and is an active member of the Society of Industrial and Office Realtors (SIOR).