Growth. This is the main buzzword when talking about the I-55 Corridor. But is the increasing demand welcome news for all? It depends on who you ask.
I-55’s present vacancy rate is just 1.4%, or 1.5 million square feet, and the shortage of supply has caused rents for ready-to-occupy space to skyrocket above predictions. This is, of course, unfortunate for businesses wanting to either grow their presence or establish a new one, but for landlords? It’s a best-case scenario.
For a 100,000-square-foot block of space, Colliers Principal Jim Estus is seeing landlords quote close to a whopping $10 per square foot net for immediate occupancy, and Colliers is advising willing-and-able clients to wait until 2023 when 4.5 million square feet of new, less expensive, and more modern product is expected to come online. The challenge lies in finding tenants who can wait — and they’re few and far between.
Given the recent uptick in demand, it’s reasonable to question where the influx of perspective occupiers is coming from, as well as the reason for the submarket’s significant growth compared to those surrounding. To answer this, one might start by looking at trends in other parts of the U.S.
The East and West Coasts, specifically, are experiencing the same low vacancy, but with double — sometimes triple — the rents as Chicagoland. It’s for this reason that Estus said these companies are flocking to Chicago. And not only that, but Suburban Chicago offers a more friendly business climate with a strong labor supply, factors both recognizable and sought-after by outside users.
Another I-55 trend Colliers is seeing is prospective occupiers submitting an offer to lease without first touring a facility, with no regard to rate. This is due, in part, to the higher rental rates of the East and West Coasts. Properties along I-55 are considered a bargain by those coming from New Jersey or California, and companies are eager to jump at the right opportunity.
Leases in Q2 ranged in size from 25,000 to 800,000 square feet, but it’s the middle market (100,000 to 600,000 square feet) that sees most submarket activity. Since multiple tenants continue to vie for the same space, it boils down to who acts faster. Estus is already starting to see preleasing for Q1 of 2024, which is a trend that Colliers hasn’t seen before.
“I-55 will bring new product, and it will likely be preleased,” Estus said. “We’re seeing a few deals now committing to buildings that aren’t started yet, and while it remains to be seen if we’ll continue to see that pattern of preleasing, it’s highly probable. The build cycle now is thirty months — six months for entitlements, coupled with a twelve-month lead time on materials and twelve months to build.”
In the meantime, with limited remaining land sites, it’s likely the submarket will move toward Plainfield.
“The submarket has strong potential to move into Plainfield, where there are three large projects at play,” Estus said. “Developers here will be bringing a potential six million square feet to the market in 2024 near Ridge Road and 143rd Street, of which 1.2 million square feet is already spoken for.”
Cresa Managing Principal Ed Lowenbaum is seeing the same trend, but even though developers are doing what they can maintain a strict schedule, the delay in obtaining materials is still an issue, and Cresa has seen an increase of 20–40% in costs. Nevertheless, Lowenbaum said these obstacles aren’t stopping heavy hitters like Amazon, Hello Fresh, NFI and Geodis, from playing the game, along with a variety of 3PLs.
“There are quite a few 3PLs, and they handle the warehousing distribution for a wide variety of companies that don’t have their own warehousing distribution,” Lowenbaum said. “They’re likely the biggest category of space users, and those buildings are able to house various product from different clients together.”
Lowenbaum also said that among other obstacles, another is the improvements being made around the submarket that, in the long run, will heighten efficiency and lessen congestion, but are difficult to navigate at present.
“It’ll be a bumpy road until I-80 is widened, just east of I-55,” Lowenbaum said. “There’s also a new road into the intermodal proposed to be completed by 2025. These are necessary improvements to keep product flowing, but they’re still underway.”
Other data for the I-55 Corridor includes:
- Q2 Net Absorption: 4,348,976 square feet
- YTD Net Absorption: 7,821,755 square feet
- Q2 Under Construction: 3,050,080 square feet, or nine buildings
- YTD Deliveries: 1,963,227 square feet, or five buildings