INDUSTRIAL SNAPSHOT: CHICAGO
DYNAMIC O’HARE INDUSTRIAL SUBMARKET REGAINS ITS BEAT ON DEVELOPMENT FRONT
Phil Reiff Jr.
Senior Associate,
Paine/Wetzel TCN
Worldwide
Chicago’s 1.2 billion-square-foot
industrial market has weathered the
Great Recession and is now showing
strong growth through expansion of
the region’s traditional boundaries
and by way of redevelopment in landlocked areas.
At the center of this trend is O’Hare
International Airport — sixth in the
nation and 17th in the world in air
cargo tonnage. All totaled, the O’Hare
industrial submarket contains 103
million square foot of product.
Since the vacancy rate peaked at
approximately 13 percent in 2010, the
O’Hare industrial submarket has rebounded in a big way. In fact, the submarket has recorded positive absorption every year since 2011.
The vacancy rate fell to 7 percent in
2014 due to an improving economy
and the aggressive deal making of the
larger industrial owners such as Prologis, KTR and Hamilton Partners.
Development Ramps Up
Shrinking vacancy rates and a lack
of available Class A logistics facilities
led to the delivery of multiple speculative developments in 2014. These
projects were the first built since 2007.
Panattoni completed 208,000 square
feet at 1925 Busse Road in Elk Grove
Village and leased the entire facility to
CEVA Logistics.
The project was subsequently sold
to AEW Capital Management at a
record-setting cap rate in the 5 percent
range. Bridge Development was active in Elk Grove, where it delivered
two speculative facilities that are currently 77 percent leased.
Build-to-suit activity also has gained
a head of steam. The largest such development was a 491,000-square-foot
build-to-suit for lease for DHL at 895
Upper Express Drive in Chicago on
the northern border of the airport.
Construction is now underway on
a 130,000-square-foot food processing facility for LSG Sky Chefs in Des
Plaines. However, with more new
speculative development to be delivered later this year, build-to-suit activity should slow down for logistics
users as their options continue to increase.
Liberty Property Trust and DCT
Industrial are currently constructing 235,000 and 112,000 square feet
of industrial space, respectively. Both
properties offer trailer parking capa-
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Older, functionally
obsolete industrial
properties with interior dock loading
and low ceiling
clearances are
being targeted as
possible teardown
opportunities.
Paine/Wetzel TCN Wolrdwide represented Charlotte, N.C.-based SPX Corp., a Fortune
500 company, in its 10-year lease of a 72,000-square-foot Class A facility at 800
Arthur Ave. in Elk Grove, Ill. The property is located in the O’Hare industrial submarket.
bilities and should garner significant
interest from transportation companies. With extra land at a premium in
the O’Hare submarket, trailer spots
are leasing as high as $200 to $250 per
spot monthly.
Brokers Stay Busy
Paine Wetzel has also joined in on
the fun as the market continues to
improve. The firm represented Charlotte, N.C.-based SPX Corp., a Fortune
500 company, in its 10-year lease of
a 72,000-square-foot Class A facility
at 800 Arthur Ave. in Elk Grove. The
deal included a 30,000-square-foot
office/tech center build-out for SPX’s
engineering department.
Paine Wetzel also represented
Manna Distribution Services with
its entry into the Chicago market.
Based in Minneapolis, Manna is focused on white-glove home delivery
of high-end, large consumer items
such as furniture and major kitchen
appliances. The company selected a
92,000-square-foot facility at 131 E.
Thorndale in Wood Dale because of
its centralized location with easy access to all of metro Chicago.
What’s Ahead?
The future of the O’Hare industrial
submarket looks strong. Even with all
the development underway, developers are still searching for the next
available site that is larger than 10
acres. Older, functionally obsolete industrial properties with interior dock
loading and low ceiling clearances are
being targeted as possible teardown
opportunities.
Land in the O’Hare submarket is
trading for about $15 per square foot,
and we believe rental rates should
continue to climb as tenant demand
for more functional product increases.
Taking all these factors into consideration, we believe transaction volume for 2015 should surpass the level
of activity in 2014.
Heartland Real Estate Business • May 2015 • 31