A scarcity of industrial space in the Chicago area is driving a growing trend: the conversion of aging office buildings into warehouses. This shift reflects both the booming e-commerce market and the changing nature of office work in a post-pandemic world.
“In Chicago, we’ve got the industrial demand from developers to convert those to industrial projects,” said Kelly Disser, executive vice president at NAI Hiffman. “Chicago’s very fortunate, in that regard. If you look around the country, there are other cities that may have some of these office projects, but they just don’t have the industrial market to support the conversion at the rate that we do.”
Lee & Associates research revealed Downtown Chicago’s direct vacancy rate for office space hit 19.6 percent in Q1 2024, while the suburbs saw vacancies hit 24.6 percent. By comparison, the industrial sector in greater Chicago is hovering around 4.5 percent.
In a recent example, Dermody Properties broke ground on The Logistics Campus on the site of the former Allstate Corporation headquarters in Glenview, Illinois. The project’s initial plan aimed to convert the 232-acre office campus into a 10-building development with approximately 3.2 million square feet of industrial space. Located in the heart of the north suburban O’Hare industrial market, The Logistics Campus has immediate access to I-294 and with proximity to O’Hare International Airport and downtown Chicago.
“The Logistics Campus’ prime location will help draw world-class companies to the region, bringing jobs and economic opportunity along with them,” said Neal Driscoll, Midwest region partner at Dermody Properties. “Our customers and the surrounding communities will benefit from this transformation of the office campus into modern logistics buildings – all with access to transportation, labor and amenities unparalleled relative to the entire metro Chicago market.”
The first phase of The Logistics Campus includes roughly 1.2 million square feet of mostly spec development across five warehouses and should be complete by the end Q2 2024. From there, Dermody said it will move forward with more build-to-suit tenants for future phases, incorporating a variety of building sizes and heights.
“Once complete, The Logistics Campus will serve the needs of our customers, the community, and many stakeholders by creating a significant number of competitive, high-paying construction and long-term jobs in the logistics industry,” Dermody President Douglas A. Kiersey, Jr. said at the groundbreaking. “We are grateful to the Village of Glenview for their partnership in bringing this vision to life.”
Another example of this trend is the planned development of Rolling Meadows Commerce Center in Rolling Meadows, Illinois. Brennan Investment Group purchased a 485,000-square-foot office building on 40 acres of land and plans to demolish the existing structure to create a new 600,000-square-foot industrial park.
“This location is unmatched in terms of its logistical advantages via the confluence of interstate systems, its access to a large and diverse workforce and its proximity to best-in-class amenities, including restaurants, hotels and shopping,” said Kevin Brennan, managing principal of Brennan Investment Group.
While these conversions offer promise for property owners, investors and warehouse tenants seeking space near customers, there are challenges to consider. Regulatory hurdles and community concerns can arise. Residents may oppose increased truck traffic, noise and potential pollution associated with industrial facilities. Additionally, municipalities might be wary of losing the white-collar jobs typically associated with office spaces.
Despite these challenges, experts believe the trend of office-to-industrial conversions is likely to continue as demand for industrial space shows no signs of abating, fueled by the growth of e-commerce. At the same time, the future of office space needs remains uncertain as remote and hybrid work arrangements become increasingly popular.
