The roots of development along the I-88 corridor dates back to the original western suburban science and tech boom of the 1970s, and since then, interest and investment has ebbed and flowed over time. But now? The market is mature and built-up. The good news is that there are still opportunities for redevelopment, but the bad news is that it’s not going to be as straightforward as it once may have been.
To offer some insight on the changing shape and face of the I-88 corridor, we reached out to brokers Brendan Sheahan of Darwin Realty and perennial Chicago Industrial Properties contributor Elise Couston of Newmark to get an on-the-ground perspective on recent deals, trends, and what’s next for this submarket.
Leasing remained strong during the pandemic
How much of an effect did the pandemic have on the I-88 corridor? According to figures shared by Newmark, the 6.5% vacancy rate at the end of 2020 was actually lower than the 9.2% total vacancy a year prior. Leasing remained strong as 2 million square feet of industrial space was absorbed in 2020.
A handful of companies signed big leases along the corridor last year. The biggest, made by Hubbell Lighting, was for 211,000 square feet of space in Aurora. TSA Processing Chicago, Inc. claimed 170,000 square feet of space along I-88, Amazon inked a 131,000-square-foot deal with the City of Naperville and Custom Filter leased over 83,000 square feet in Aurora.
With so much demand in ecommerce and for manufacturing, the industrial real estate market maintained strong footing during a period of so much economic uncertainty. By gleaning the numbers, it’s hard to say how much of an impact, if any, the pandemic had on leasing. “In 2020, there were 16 deals signed on I-88, which is a lot of deals,” Newmark’s Elise Couston explains. “And in 2019 there were 19 deals signed, so that isn’t much of a slowdown.”
Developers are running out of room to grow
After a few decades of steady development, it’s only fair to describe the I-88 corridor as what it is: a mature, infill submarket, says Brendan Sheahan of Darwin Realty. This doesn’t mean that there aren’t any opportunities left or that prospective tenants will have to settle for less. And as far as older industrial inventory? Much of the development along the corridor was done in the ‘90s and early 2000s, so the majority of I-88’s industrial properties are still largely up to snuff.
“Certainly there’s not a lot of land to build new product, so we’re at the beginning of seeing where this takes us in the submarket because by and large, most of the ‘older’ product is still functional,” Sheahan says. “I’d suspect that as demand continues, you will probably see continued rent growth on what may currently be considered Class B product, but is still 30-foot clear exterior docks quality buildings.”
As for the developers and business owners who need newer and larger, purpose-built facilities, the money is on continued westward expansion, both Sheahan and Couston suggest, citing recent deals and newer interest in areas like DeKalb and Sugar Grove. And as future deals pile up in DeKalb, Couston predicts that the I-88 corridor could see more infill along the stretch between Aurora and DeKalb.
For those who wish to remain in the heart of the existing I-88 corridor between Naperville and Aurora, there will be opportunities for renovation of existing facilities or wholesale demolition and new construction, Couston suggests. While this trend isn’t as common along I-88 as it is in other submarkets, particularly around O’Hare, it’s something that could become more viable as the corridor further matures.
Ecommerce is not the only game in town
While it’s Amazon’s success during the pandemic — largely fueled by stay at home orders from state and local governments — that has dominated headlines in commercial real estate, the I-88 corridor boasts a healthy mix of industries and investor classes. It’s no longer the suburban office corridor it was long known for.
“The interesting thing about the submarket in general is the mix of users out there,” Sheahan says. “You go from privately held family companies, in both manufacturing and distribution, all the way up to Fortune 50 type companies.”
Some of the big names Couston mentioned that have either entered or expanded their presence along the corridor in recent years include the likes of Hyundai, Toyota, Mazda, Kraft, Amazon and Fedex.
“I’m talking to companies all the time — not just ecommerce — about how we’re seeing an increase in manufacturing be it food processing, anything medical or healthcare related, cold storage, etc,” Couston explains. “There’s just a lot of demand that was not in place last year.”
What happens in this next year?
With a new optimism brought on by a $1.9 trillion stimulus bill and mass vaccinations, economic prospects are looking much better for 2021. Some analysts are predicting upwards of a 10% growth in GDP just in the first quarter alone.
And as for the I-88 corridor and greater Chicagoland region? With so much interest in industrial, developers are keeping brokers busy searching for the next deal.
“Developers are calling us to try and find deals and people have money that they want to put into industrial, so I think the outlook is pretty bright for 2021 and going forward,” Couston says. “And I should balance that by telling you that brokers are eternal optimists — I’ve never met a pessimistic broker who’s been successful.”
This article also appears in the March 2021 issue of Chicago Industrial Properties.