Lease rates are on the rise, speculative development is back, and CAP rates are low in the I-55 corridor, according to Jeffrey Galante, principal at Lee & Associates.
With the second half of the year underway, Galante expects to see much of the same things from the first two quarters.
“With all the new inventory coming to the market,” Galante said. “I think you are going to see the vacancy rates rise a bit in the corridor. Vacancy rates have dropped, and are at their lowest level since pre-recession.”
He added, “The larger building activity has slowed down a bit, but I am optimistic that it will pick up through the remainder of the year. There has been a little slow down in larger deals in the market.”
As far as new developments in the pipeline go, Galante said, there are currently a number of new speculative buildings under construction, and a few that are just being finished.
“IDI is almost complete with a 602,600 square foot building,” he said. “IIT just completed an 180,480 square foot speculative building, while Prologis and Molto Properties are breaking ground on 329,828 square feet and 189,662, square feet buildings.”
“Not only have we seen the speculative development increase, but there has also been a flurry of built to suits, such as Ashley Furniture’s 417,000 square foot building, and a 347,000 square feet build to suit for Orbus Exhbit and Display.”
The I-55 corridor is leading the way in terms of development, according to Galante, and has always been the focus of institutional buyers. He says the corridor is also recovering strong due to its strategic location and low real estate taxes.
Galante is not the only real estate expert who recently said that the I-55 corridor is hot right now, and says it is because they have not seen speculative development in the corridor in a very long time.
“Historically it has always been one of the most active markets in the Chicagoland area. Vacancy rates are low spurring the need for spec product,” Galante said. “There is much more optimism than in the overall market. There was a long lull in development when the economy was in the downturn. Optimism has grown on all fronts. We are seeing tenants expand and growing their businesses.”