by Dan Rafter
NAI Hiffman’s Mark Moran, Steve Connolly and Brett Tomfohrde earlier this year made their own impact on the I-88 corridor. The brokers, who make up NAI Hiffman’s Industrial Services Group, closed three industrial transactions in this solid if not booming corridor.
And the three industrial pros are far from alone. The I-88 corridor might not be as active, say, as the I-80/I-55 corridor. But it’s still a strong industrial submarket in the Chicago area. There might not be as much new construction here, but vacancies are low and space here is desirable.
Warren Seil, president of Woodridge, Illinois-based Morgan/Harbour Construction, summed up the I-88 corridor like this: “It’s a solid market. The vacancy rates are low. We aren’t seeing a lot of new construction there, but there’s not a lot of vacancies in that corridor, either.”
A steady market
Moran, Connolly and Tomfohrde’s I-88 deals earlier this year are representative of the kind of activity taking place here today.
TIAA, with the help of the three brokers, renewed its 34,717-square-foot lease with Cable Plus at 2012 Corporate Lane in Naperville. The team also represented College West Limited Partnership in a new lease with Tecta Roofing for 16,353 square feet at 4813 Kingston Drive in Lisle.
And in the third transaction brokered by the team, Canino Electric Co. signed a long-term lease for 12,200 square feet of space at 41 Plaza Drive in Westmont. Canino is relocating from a facility the company owns in Broadview. The new space in the I-88 corridor gives the company a chance to expand its services.
These aren’t huge deals, but they are evidence that companies are actively seeking space in the I-88 submarket.
In one of the larger recent deals in the corridor, Midwest Warehouse last year leased Opus/USAA’s 604,000-square-foot speculative facility in Bolingbrook.
Also last year, Duke Realty completed a 500,000-square-foot built-to-suit for Fellowes Manufacturing, while the McShane Companies completed a 305,000-square-foot built-to-suit for PPG.
Earlier this year, the Opus Group and AEW Capital management began construction on a 452,000-square-foot speculative industrial warehouse at 1100 Orchard Gateway Blvd. in North Aurora.
“We’re excited to bring another speculative industrial project online in the North Aurora area on the heels of the success of our first building in the business park,” said Mike Yungerman, vice-president of real estate development with Opus Development Company, in a written statement. “The I-88 submarket has experienced strong leasing activity over the last year and with easy access to the interchange and highway visibility, the location will make this development all the more desirable.”
This new warehouse will sit on 25 acres. It will feature 48 docks — with room for expansion of up to 88 — four drive-in doors, 79 trailer parking spaces and 263 parking stalls for cars. The facility will boast 36-foot clear ceiling heights, an amenity that more tenants are seeking.
Construction is scheduled to wrap up in July of 2016.
Geoffrey Kasselman, executive managing director and national industrial practice leader with the Chicago office of Newmark Grubb Knight Frank, said that as of the end of the fourth quarter of 2015, the I-88 corridor had the lowest vacancy rates of any industrial submarket of Chicago, according to his company’s research.
“That tends to be a fairly high-demand corridor,” Kasselman said. “But it is also made up of large components of alternative users, residential, research-and-development and flex. The amount of land allocated to industrial for new construction is limited. That is one of the reasons why there is such limited new construction, limited land availability in that corridor.”
Industrial on a whole is on the rise
The I-88 corridor is enjoying solid leasing and sales activity. This doesn’t make it unusual in the Chicago area. Industrial pros said that the entire Chicago-area industrial market is a busy one today.
“The industrial sector is quite busy,” Seil said. “I know how busy we are. There is a lot of spec construction activity. Developers are out there right now building spec facilities. We have four spec buildings that we are working on right now. I think that’s a good barometer of how strong industrial is.”
Seil doesn’t expect these busy times to slow in the near future. Morgan/Harbour is now quoting several possible spec facilities in the Chicago suburbs and the city itself, Seil said.
“I see this activity rolling into next year,” he said. “I can say that very confidently right now.”
Barry Missner, president of the Missner Group in Des Plaines, agreed that the industrial market throughout the Chicago area is thriving today.
“All of the metrics that measure the industrial real estate market are very good right now,” Missner said. “Demand is good. Rents are growing. We are in a good place right now.”
Missner said that his company is focusing much of its attention on in-fill markets today.
That can be a challenge; It’s not easy to find good in-fill locations that can support new industrial product.
“It is expensive to develop in-fill industrial,” Missner said. “There is the whole process of entitlements that you have to go through. Often times you will run into environmental issues. You are usually repurposing and demolishing an older building. That isn’t inexpensive. You are dealing with new storm water requirements. It is challenging to not only find those in-fill locations, but to make them work from a redevelopment and economic standpoint.”
Missner said that the busy industrial market is a result of the pent-up demand for industrial space. During a four-year period starting in 2009, there was almost no speculative industrial construction in the Chicago market, Missner said.
This left tenants scrambling for space once the national economy began to rebound.
“That complete fall-off in new supply hitting the market made a big impact,” Missner said. “When the market started to rebound, that slack was taken up very quickly. Everyon was more cautious about creating new product. But those people who were able to create new industrial space saw it fill up quickly. Tenants were ready to move. Today, the economy is strong enough that tenants are willing to make a commitment to new industrial space.”
And many of these tenants would rather do business from a new facility, Missner said.
“Companies look at many other factors in addition to rent,” he said. “The big companies look at travel times and amenities. The smaller companies can look at a building with higher clear heights and understand, too, that you can stack higher in these facilities. This is why so many companies are looking for industrial space that is newer.”
The important amenities
Industrial tenants, both in the I-88 corridor and throughout the Chicago industrial market, are looking for specific amenities from their facilities today.
Seil said that industrial buildings built today are getting taller. Tenants are focused, too, on how flat their floors are. They want more space for parking.
Missner said that many tenants are looking for LED lighting today. He says that the days when 30-foot clear heights become common might not be that far off, with some tenants even talking today about 36-foot clear heights.
Both Missner and Seil predict a busy industrial market for the next several years in the I-88 corridor and the entire Chicago area. The demand for industrial space, and especially more modern space, is just too strong for a slowdown in the near future, they said.
“It seems as though Chicago was a little bit behind in recovering from the economic slowdown,” Seil said. “We are finally seeing the world come back to Chicago these days. Chicago is a great hub for distribution. There is a great labor force here. I see the industrial market remaining strong here into next year.”
“I don’t see any red flags saying that somehow this market is cooling off,” Missner said. “This demand is robust. I don’t see anything that is going to change that. There is still some runway here. I don’t feel that we are in the eighth or ninth inning. We might only be in the sixth inning of this activity.”