Chicago CRE truly outdid itself in 2015. Submarkets like the I-80, I-88, I-90 and I-294 Corridors, as well as the O’Hare market have had no issue attracting industrial investors. Activity has been rock solid in terms of what’s coming in, and there’s no other way the industry wants it.
Of those corridors, O’Hare and I-90 in particular have grabbed the market’s attention due to its crazy activity and strong availability of product.
These two locations have experienced a lot of growth and stability for the most part, according to industrial research.
Kevin Kramer, director of economic development at Village of Hoffman Estates, said there’s been a lot more built-to-suit interest in I-90 than speculative.
Workforce development is another popular trend lately.
“A lot of the companies we talk to that are looking in the area ask, ‘how’s your workforce?'” Kramer explained. “That’s a big driver for site selection.”
But the takeaway of 2015, he believes, is that it takes a lot to get a deal done now than before the recession since most of these projects starting construction began a year or a year and a half ago, so companies are always asking these days how quickly they can get approval.
Kramer predicts more advanced manufacturing in the new year and reshoring coming back to the U.S.
“Manufacturing is good in Midwest and that’s what they’re known for,” he added. “I’ll take that because not only are they bringing jobs, they’re also bringing more people to the community.”
O’Hare has been one of the hottest—if not the hottest—submarket in Chicago commercial real estate in 2015. Its proximity to suburban Chicago and its close access to I-294 and I-90, as well as the airport give it a reputation for being one of the most demanded spaces by occupiers—and investors are loving it.
From the substantial number of sales and leases to the new developments, the action speaks for itself. But before jumping into some of this year’s notable deals in the O’Hare market, we ask: How was this year’s third quarter performance compared to the second and first?
Well, tenant demand was especially strong, that’s for sure. According to a Colliers International Q3 research market report, O’Hare vacancy and absorption decreased, while rental rates went up. Vacancy in the third quarter totaled 5.35 compared to 5.45 in the second and 5.97 in the first.
The report shows a drop in the submarket’s industrial supply from 7.6 million square feet in the second quarter to 7.4 million square feet in the third. In the last four quarters altogether, available supply has dropped a significant 2.3 million square feet in the O’Hare market.
While the sales and lease volume dropped in the third quarter to 990,000 square feet, all of the combined 2015 activity in O’Hare just goes to show the submarket’s potential.
According to the report, significant third quarter leases included TopLine Furniture‘s 310,900-square-foot warehouse facility in Itasca, followed by PTS Logistics‘ 89,901-square-foot lease at 1845 Tonne Road in Elk Grove, and Groot Disposal‘s 79,617-square-foot space at 55 E. Howard Avenue in Des Plaines.
While O’Hare saw no new construction activity in the first two quarters, the third quarter saw the completion of a 130,980-square-foot facility for LSG Sky Chefs at 200 E. Touhy in Des Plaines.
DCT Industrial Trust broke ground on an 112,862-square-foot spec facility at 2200 Arthur Avenue in Elk Grove Village in November 2014. To date, the project has not been completed despite it being slated for summer 2015. The facility has, however, been pre-leased.
Liberty Property Trusts‘ 235,800-square-foot spec facility in Des Plaines slated for completion in the fourth quarter has been completed. The other development slated for fourth quarter completion is Hamilton Partners‘ 184,000-square-foot building in Bensenville.
Liberty Property Trust purchased the 16-acre site in November 2014—its largest yet—located at 333 Howard Avenue in Des Plaines. After knocking down a 290,000-square-foot building, the firm developed the 235,000-square-foot Class A, spec distribution facility there in October 2015.
In November, C.H. Robinson, one of the world’s largest logistics providers, signed a seven-year long-term lease at the 333 Howard Avenue facility and plans to bring 150 employees to its new location beginning early 2016.
Neal Driscoll, vice president and city manager at Liberty Property Trust, said it’s difficult to find quality sites around the airport and when you do, it’s a timing game.
“There hasn’t been a project around the airport that hasn’t filled up well before their anticipated start day,” he explained.
Also this year, Bridge Development’s purchase of the 55-acre Dominick’s complex along I-294 in Northlake was awarded Industrial Redevelopment of the Year.
According to Noel Liston, principal at Darwin Realty, the total project consideration was roughly $90 million and consisted of a new speculative building just under 600,000 square feet that was subsequently sold to Prudential as well as the modernization of several cold storage facilities on site.
To add to the list of deals, Kramer said that TRUMPF purchased a 50,000-square-foot build-to-suit in Hoffman Estates. The deal was finalized in October 2015 and according to the company, it will combine an innovative automation center with research and development.
“They like the O’Hare submarket because they’re near competitors and focusing their laser machine cutting sale center here,” he explained.
A number of suburbs along the route have seen a resurgence of activity and although third quarter research seems to show a slight decrease in performance, experts remain opportunistic.
Colliers International’s 2015 industrial market report showed that vacancy in Elgin was negatively affected by a significant amount of space returned that quarter, causing a climb to 11.3 percent.
However, that’s much more attractive compared to one year ago when vacancy in the area was posted at 13.08 percent.
A total of 605,400 square feet was returned to Elgin in the second quarter and of that, only 379,700 square feet was brought on the market. The report showed that vacant supply totaled 3.5 million square feet.
Elgin also saw the addition of 134,400 square feet in the third quarter with the completion of a 50,400-square-foot build-to-suit project for Nutriad in Hampshire.
Also in I-90, Palumbo Construction completed an 84,000-square-foot spec warehouse facility in Terra Business Park, 401 Christiana Drive in East Dundee. And one build-to-suit development is currently underway in OPUS’s Oakview Corporate Park in West Dundee—Renishaw, Inc. started work on the 133,000-square-foot facility on an 11.50-acre site.
Leasing activity in the corridor increased in the third quarter totaling 211,200 square feet, according to Colliers research. Three total sale transactions amounted to 72,000 square feet, a decrease from second quarter. And while absorption was fairly healthy, it was still significantly less than the 1.0 million square feet in second quarter.
Colliers’ list of significant transactions along the corridor included: Convenience Concepts‘ lease of 50,056 square feet at 2300-2370 Galvin Drive; Pepsi Co. Real Estate‘s lease of 49,775 square feet at 2790-2794 Spectrum Drive; and the sale of 42,000 square feet at 1616 Berkley Street to Simplomatic Manufacturing Co.
According to JLL’s third quarter 2015 Chicago Industrial Submarket Narratives report, other deals included Weber‘s short term lease with Stockbridge for the entire 251,000-square-foot building at 2500 Northwest Parkway. Stockbridge also secured a 77-month lease renewal with Stelfast for 65,000 square feet at Spectrum Drive.
Additional leases were Hillwood’s three-year renewal with McKesson at 300 Airport Road in the Fox River Business Center; DCT Industrial‘s two mid-sized leases; Wisdom Adhesives 39,000-square-foot lease at 350 River Road for five years; and Centimark agreed to lease 34,000 square feet at 200 Corporate for 151 months.
JLL research shows that a limited pool of standing Class A inventory remains, noting four availabilities in North Kane and one in Molto that is under construction. Molto Properties is near completion of a 246,446-square-foot facility at Randall Crossings Business Park, which was slated to finish by year-end.
However, it was Conor Commercial that topped the list of largest sales of the year with the sale of 2501 Galvin Drive, a 342,620-square-foot distribution building, to Zurich.
As for the upcoming changes that could improve services, the Illinois State Toll Highway Authority is working on a major $2.2 billion project, according to JLL’s economic outlook. It’s rebuilding the I-90 Janes Addams Tollway for the first time since opening in the 1950s. The changes will widen the highway to improve traffic flow between Rockford and O’Hare.