Chicagoland's Industrial Boom Spreading Development Into New Submarkets
Chicagoland’s industrial sector set records throughout 2020, and with coronavirus vaccinations beginning to curb the pandemic and heal a shattered economy, the coming year could be one of the sector's biggest ever. But the rapid expansion has tightened conditions in several of the market’s traditional strongholds, leading developers to push out into new areas.
Developers planted new industrial buildings over the last few years all along the region’s expressways, including Interstate 88, which stretches southwest through suburban Aurora. Builders had delivered more than 3.5M SF in the submarket near I-88 and Aurora since the start of 2017, but new construction along that road recently stopped even as development continues to boom throughout much of the Chicago region, according to NAI Hiffman.
“That part of DuPage County, for the most part, has been built out,” NAI Hiffman Executive Vice President Mark Moran said.
Tenants looking for space in DuPage County near I-88 still have options, he added. Distribution buildings and warehouses are now sprouting up on once-vacant land 6 miles north of I-88 on the county’s western edge. Centered around the Fox Valley town of West Chicago, the new buildings help illustrate how continuing tenant demand is remaking DuPage County’s industrial market and creating new pockets of development once considered too far outside the core.
“Historically a lower velocity submarket, new leasing activity has been increasing over the past several years due to speculative development and institutional ownership interest in the area,” Colliers International said of Fox Valley in a Q4 report. “Increased institutional ownership and modern product has already attracted tenants to the area that would have never considered the submarket in the past.”
The I-88 Corridor to the south remains popular with users. New leasing activity there has ramped up, increasing from 1.4M SF in 2018 to 2.4M SF in 2020, according to Colliers. But with nothing under construction and nothing in the development pipeline, available space in modern buildings will grow scarce. Users looking for at least 200K SF in the corridor only have six options, four of which are vacant, the firm said.
That is where the 650-acre DuPage Business Center in West Chicago comes in, Moran said. Originally owned by the DuPage County Airport Authority, which purchased the land around the airport to keep it out of the hands of residential developers, the property has seen a burst of industrial activity in the last 24 months.
The authority had hired NAI Hiffman to market the West Chicago property, and it now has a mix of new buildings totaling about 3M SF, including a 150K SF one for Amazon that opened last year, a 782K SF structure occupied by Suncast Corp. and a new 303K SF spec development at 2525 Enterprise Circle by Midwest Industrial Funds, now 100% leased to Skyjack Corp. and DS Containers Inc. In addition, in 2020 Cheese Merchants of America leased 300K SF at 2595 Enterprise Circle, a spec project being developed by Greco & Sons, and Shorr Packing Corp. took 250K SF at 555 Innovation Drive.
“They come up here because it’s hard to find anything of that size near Aurora,” Moran said.
The more than 1.8M SF leased in Fox Valley in 2020 was more than double the 812K SF taken by tenants in 2018, according to Colliers.
NAI Hiffman has another four sites within the West Chicago site under contract, Moran added. When developers finish with those parcels, they will be able to add about 1.5M SF to the industrial park, bringing it to around 4.5M SF, with roughly another 60 acres left to develop.
“When I got into the business in the 1990s, if I had asked companies in Aurora if they wanted to move to West Chicago, they would have said no way, but now they have to because there are such limited options,” he said.
And the 6-mile drive south to I-88 doesn’t cause much of a delay in deliveries, he added.
“The I-88 and Fox Valley submarkets are now blending together. It’s almost become one submarket, in a sense.”
Spreading out into new submarkets isn’t the only option for developers and users in land-constrained markets. On the other side of DuPage County, in the submarket near O’Hare International Airport, some developers are going big and tall.
Most of the buildings near the airport are under 200K SF, but ML Realty Partners plans to break ground this summer on two spec buildings at Busse Road and Devon Avenue in Bensenville that will total more than 600K SF. The buildings will also provide tenants with 40-foot clear heights, a rarity near the airport, according to Chief Operating Officer Nancy Kozinski.
“With the rise of e-commerce, we've seen companies who require a larger footprint looking to move closer to the airport,” she said. “With extremely limited land sites available, these opportunities will continue to be rare in this market. Clients are getting more sophisticated in utilizing overall cubic feet versus just floor space.”
The vacancy rate of the submarket sank below 3% in 2018, according to Colliers, and tenants kept flooding in, leasing more than 10M SF in the past three years. Developers finished 10 construction projects totaling 1.6M SF in 2020, most of it on spec — the most ever for the submarket in one year.
“At the end of the year, these buildings were already 63% leased, a short lease-up time rare elsewhere in the market,” Colliers said.
The largest project underway near O’Hare is a 317K SF build-to-suit in Wood Dale being developed by Transwestern for Nippon Express, according to Colliers. Another four O’Hare projects totaling 470K SF are being built on spec by other developers.
Colliers forecasts that tenants will keep showing up as new spec projects open for business.
“The only limiting factor is available supply,” Colliers said.
