The past year was robust for industrial projects, and while Interstate-88 didn’t have the same burst of activity as did I-55 or I-80, it still fared well.
Eight new buildings totaling 2.7 million square feet were completed in the I-88 corridor in 2016, according to a report from Colliers International. Five of those were build-to-suit and three were speculative projects totaling 1.2 million square feet.
Duke Realty Corporation developed the largest build-to-suit project for Fellowes Inc. at 2850 Duke Parkway in Aurora’s Butterfield Corporate Park, Colliers reported. The 499,140-square-foot warehouse sits on about a 25-acre site within the corporate park.
Three speculative projects, totaling 1.2 million square feet, were delivered, only one of which has been leased, according to Colliers. Amazon has leased 402,860 square feet of space at Butterfield Corporate Park at 4200 Ferry Road. In the same corporate park, the company pre-leased a 954,720-square-foot spec facility as well. The two other spec projects, CenterPoint Business Park at 1600 Sequoia Drive and Gateway Logistics Park at 1100 Orchard Gateway, do not yet have tenants.
The leasing activity this year fell slightly short of the numbers last year even with all the activity from Amazon. In total, 2.4 million square feet of leases were signed compared to last year, which was at 2.6 million square feet.
“The past four years, we’ve witnessed significant developer interest in the I-88 corridor, as just shy of 5 million square feet was completed, 54 percent of which was built on spec,” Craig Hurvitz, vice president of market research at Colliers, said. Much of the user demand came from medium- to large-sized tenants who were looking for modern facilities and found scarce options in the I-55 corridor.
The vacancy rate has fluctuated quite a lot because of the completion of spec construction, Colliers reported. The second quarter saw the lowest vacancy rate at 6.7 percent. This rate then jumped up to 8.08 percent the next quarter while ending the year at 7.3 percent.
The net absorption skyrocketed this year to 2.3 million square feet, more than quadruple what it was in 2015, according to Colliers. The increase resulted from the five build-to-suit facilities totaling 1.5 million square feet that were completed last year.
Despite the fluctuation in the vacancy rate, David Friedland, an executive director at Cushman & Wakefield, thinks the slowdown is temporary. Friedland is a 22-year veteran in the industrial market and specializes in I-88 corridor sales and leases.
“It’s not usual to see a decrease at the end of the quarter, especially after such a robust year,” he said. “There are all kinds of speculation as to why. Sometimes the market is so active it’s difficult to continue.”
Friedland expects the market will keep up the activity seen throughout 2016, especially with low interest rates and e-commerce being a huge driver. He also sees the activity from Amazon as a positive, and that it could attract certain companies to the area. One of the advantages to I-88 is that it is a hybrid market—it’s not in the middle of nowhere. Business owners want to work and live in the corridor, he said.
A problem Friendland foresees is the challenge of keeping a balance between supply and demand. During the past five to seven years, he’s noticed significant growth in the submarket. While that activity is good, it also presents the challenge of limited space.
It just isn’t easy to attract big box users to the I-88 market because there aren’t many available sites for them, Friedland said. The same goes for buyers coming out of multi-tenant buildings looking for stand-alone smaller buildings. He predicts new construction will continue, both spec and build-to-suit, but that new building will focus on smaller projects between 100,000 and 200,000 square feet.
When there’s so much new product, second-generation buildings will have to be more competitive, Friedland said. Even with limited supply, those buildings might have to be less expensive.
“Everyone asks whether we are in the 7th inning or the 9th inning,” said Friedland. “All I can say is that industrial will be strong for another year. There’s no let-up in sight.”
