Billions of dollars are being spent by the FAA on the ambitious modernization of Chicago’s busy O’Hare International Airport, but developers and their investor partners are also spending big bucks on the submarket’s sprawling industrial building stock that surrounds the airport.
As demand for industrial space around O’Hare continues to climb skyward, competition for those rare development opportunities around the airport and the tangle of interstate interchanges follows the same linear trajectory. Except there’s one big problem: there’s really no more room to grow.
In many ways, the submarket could be seen as a victim of its own success. The lack of space in and around O’Hare is not a new problem — the area is already a highly built-up and mature submarket. But the story on both airport and industrial expansion at O’Hare are a bit unprecedented to say the least.
In 2009, the city of Bensenville dropped its fight against the O’Hare expansion plan, clearing the path (literally) for more runways. In the following years, hundreds of homes were wiped out and new runways blossomed in their place. And then earlier this year, Prologis and ML Realty made headlines for buying out individual homeowners in a Bensenville subdivision to carve even more developable space out around O’Hare.
Except this time, the reclaimed land will be used for industrial facilities.
Scooping up homes in the subdivision, located near the southwestern corner of O’Hare’s footprint, may seem extreme, but it’s indicative of the lengths that developers will go to recapture territory for further expansion. The areas located around O’Hare remain under pressure as both the airport and the industrial economy that buzzes around it continue to soak up land that is currently used for residences, retail, or office space.
According to the most recent Q3 numbers in a report from NAI Hiffman, the industrial vacancy rate for the O’Hare submarket was just over 3.5%, which is even more aggressive than the 5.1% overall vacancy for the Chicago metro area. And while O’Hare is one of the region’s largest industrial submarkets in terms of volume, with a combined total of 103 million square feet of space, there were only 400,000 square feet of new projects under construction by the end of September.
The numbers can be a bit perplexing, especially on the heels of an industrial bull run through a once-in-a-lifetime pandemic. And while passenger flights were down significantly during the early months of the pandemic, cargo flights persisted as supply chains were pushed to the brink.
“You use the phrase ‘help make sense of the numbers,’ and I’m having a hard time making sense of the numbers,” said NAI Hiffman EVP Joe Bronson to REjournals while discussing the latest stats and market trends for O’Hare. “We’ve got the largest industrial park in North America and everybody wants to be there.”
“But this is the craziest part I keep coming back to,” Bronson continues. “They’re not building 50,000-square-foot buildings anymore — they won’t ever do that again, it’s just too expensive.”
With such a low vacancy rate and small amount of new space being built in O’Hare, it can be very challenging to find the right place for a client tenant, Bronson adds. And it’s not just because there’s other competition; part of it is simply that many existing owner-operators are holding.
“It feels like we’re racing to zero. I’m worried that there aren’t going to be any options in six months because they can’t build these new buildings fast enough,” Bronson says about the extremely low availability in the submarket.
And the numbers don’t lie. When there is such tight competition and so little room for growth, Bronson’s forewarning shouldn’t be considered alarmist, per se. It’s just simply the reality of the situation. Instead, things might only get more interesting.
“There are a lot of people showing up late to the party, but who knows what time the party ends,” he says of the boom. “When Sam Zell shows up to the party, it’s very surprising because he only shows up at the best time … and it means that there is still a lot of runway left.”
Candace Scurto, a broker with Brown Commercial Group, says that the present moment is the busiest she’s seen in her budding career. And the momentum is likely to push right on through the winter season.
“There’s no immediate sign of things slowing down,” Scurto says of the current momentum in the O’Hare submarket. “Usually around this time of the season coming into the holidays it can get a little slower, but we haven’t experienced that. It’s just been crazy.”
Scurto highlights the same issue that Bronson has had with his clients, which is the challenge of finding space for owner-occupiers. And the search can take an extremely long time. She mentions one particular experience working with a construction company that had exercised extreme patience and diligence during their search.
“This deal was done in 2020, but we spent about three years looking for them,” Scurto says about the lengthy process. “Their needs were somewhat particular, so no building ever seemed to be the right fit, but we eventually found that building. We explored options outside of the O’Hare market just from billing prices, but we ended up landing them in Bensenville.”
At the end of the day, a lot of operators and businesses just simply need to be in the O’Hare market, both Scurto and Bronson suggest. And the pressure on business owners to find space for expansion or reach will continue to build as the region prepares to plunge into the cold winter months.
“Drive time costs are expensive and you can’t really operate your business by traveling 70-plus miles a day,” Scurto elaborates about the need for many companies to be located within the O’Hare submarket. “It’s just easier to be centralized with major transportation routes where they can get anywhere at any time.”
This story also appears in the November issue of Chicago Industrial Properties.
Editor’s note: A representative for the Village of Bensenville has reached out to provide a comment and request an edit to the original story. The story has been updated to reflect this change.
“While we agree you make some great points about the expansion of O’Hare, there was some concern from the Village regarding your line that ‘The city of Bensenville could very well one day vanish off the map…’ The Village of Bensenville has no intention of going anywhere and remains committed to building a vibrant, welcoming community with both residential and commercial opportunities.”