As Chicago’s industrial market shows no signs of slowing, one particularly bright spot is the Interstate-55 Corridor. In addition to offering accessibility and visibility along its namesake thoroughfare and Interstate-355, which runs through it, the submarket is accessible to both Chicago airports and nearby expressways, including I-80 to the south, I-88 to the north, I-294 to the east and I-355.
As a result, the I-55 Corridor has long been a draw for industrial users, and continued absorption by companies that manufacture, store and ship products has fueled a wave of speculative projects, many in competitive infill locations.
Last year, 22 industrial projects were completed in the I-55 Corridor, 19 of which were developed on spec, according to a report from Colliers International. Amazon had the largest new lease of the year, filling an entire 767,161-square-foot warehouse in Romeoville – a deal that underscores the submarket’s appeal as a warehousing/distribution hub. Romeoville was also home to the submarket’s largest delivery of 2016: a 787,499-square-foot speculative facility developed by Panattoni.
While the I-55 Corridor is known for big-box projects, not all spec development has been geared toward larger users. Last fall, HSA Commercial completed the third and final phase of the firm’s highly successful Park 355 development: a 152,122-square-foot warehouse at 2141 Internationale Parkway in Woodridge. Located near the junction of I-55 and I-355, the Class-A facility was designed to accommodate users requiring as little as 45,000 square feet, making it one of the only newly built options available for smaller tenants in the I-55 Corridor. Cort Furniture was the first tenant to lease space in the building, filling 56,056 square feet last October. A total of 96,000 square feet remains, divisible for two tenants.
Chicago Industrial Properties checked in with Tim Thompson, executive vice president and managing director of industrial brokerage of HSA Commercial Real Estate, for more insights on what’s propelling the area’s growth.
Why is the I-55 Corridor so attractive?
Tim Thompson: What’s happening in this area is a reflection of the current overall strength of the industrial market. Sale and leasing activity remains strong, with vacancy expected to decline – putting upward pressure on rents – even as additional spec developments come online. The I-55 Corridor, in particular, benefits from its lower taxes and proximity to skilled labor and major expressways, which is why Amazon , other e-commerce users and other firms in warehousing and distribution have been drawn to the area.
It’s really the same market dynamics that are at play today as when HSA Commercial began developing the 37-acre Park 355 complex in 2006. Manufacturing and logistics users quickly filled up the development’s first two phases, completed in 2008 and 2014.
What’s driving spec development in this submarket?
Thompson: As you might expect, the I-55 /I-355 junction has always been active due to its accessibility to the entire regional interstate system. Today, we’re seeing a perfect storm in which many spec projects are filling up as fast as they’re being built – a building that had zero tenants lined up when construction began might be all or partially leased by the time it’s completed. As quality infill sites are becoming increasingly difficult to find, we’re seeing more interest in property stretching south to the I-80 Corridor.
What types of users are drawn there?
Thompson: Wherever Amazon plants its flag, other e-commerce companies are sure to follow, so that’s a sector that will continue to absorb space in the I-55 Corridor. These tenants want high clear heights, more truck docks and ample parking, so the newly constructed buildings in the submarket are especially attractive.
How much space do tenants require?
Thompson: Historically, the I-55 Corridor has catered to users requiring at least 100,000 square feet. While that’s still the case, as evidenced by recent leasing and construction activity, we’re also seeing demand from small- and mid-size users with limited new-construction options available to them. Phase III of Park 355 was designed to fill this void in the market, offering suites divisible to 45,000 square feet. This flexibility allowed us to market the property to several smaller tenants that would occupy the 152,122-square-foot building.
What’s the biggest challenge for owners/developers? Tenants?
Thompson: For developers, I think the biggest challenge in this market is finding land. With a record number of projects under construction, many of the quality sites have been taken, so developers are expanding their search to new areas further south to I-80. Record absorption of more than 26 million square feet in 2016 exceeded new deliveries, so demand continues to outpace supply. While that’s a good sign for the market, it also creates challenges for tenants faced with rising rents as vacancy continues to fall. Users must move quickly to secure space and must be willing to pay a premium for the best locations.