• Posted: March 6, 2019
• better construction, Chicago Construction Market

The Chicago logistics industry remains on stable footing as steadily growing wages and accelerating household formation are driving demand for more e-commerce-driven warehouse space. And according to Marcus & Millichap’s second half 2018 industrial research market report, developers looking to expand Chicago’s 1 billion-plus square-foot inventory are locating in familiar spots.

The I-55 corridor near Joliet continues to generate builder interest as the area has received roughly 25 million square feet since the beginning of 2016. Earlier this year, CT Realty began construction of a $125 million, 1.34 million-square-foot logistics project in Romeoville. The two-building development, Interchange 55 Logistics Park, is slated for year-end completion. A determining factor for the location was access to I-55 and I-355 trucking routes, as well as proximity to BNSF Logistics Park, Union Pacific Intermodal Terminal and FedEx and UPS consolidation hubs.

“This project is ideally situated in the heart of the Chicago bulk warehouse and logistics market and will provide users with access to the largest inland port market in the U.S.,” said Carter Ewing, managing partner with CT Realty.

Communities around O’Hare International Airport also remain focal points for developers, as distributors seek out space in this corner of the metro for its access to the airport and to some of Chicago’s most-traveled thoroughfares. In addition, rents are relatively affordable as they nearly align with the market average. Vacancy around the airport consequently sits in the low-4 percent band, one of the lowest figures in the metro.

And O’Hare can still attract large, new development. CenterPoint Properties just completed two speculative warehouse facilities at the CenterPoint Logistics Center O’Hare in Franklin Park. One structure is 225,891 square feet with 32-foot clear height, 50 exterior docks and parking for 68 trailers; the other totals 333,696 square feet with 36-foot clear height, 92 exterior docks and parking for 76 trailers. The new facilities are centrally located with efficient access to I-294, Irving Park Road, public transportation and the O’Hare Airport South cargo gate.

Vacancy metro-wide sits at 5.9 percent, the lowest level in more than a decade. This is driven by net absorption of approximately 19.7 million square feet so far in 2018, according to Marcus & Millichap research. This tightening market supports strong rental gains, pushing the metro’s average asking rent to $5.71 per square foot, an increase of 5.2 percent.

Just over the border, Kenosha County should also continue to log reduced vacancy through the remainder of the year as rents are significantly lower than some other northern sections of the metro. Though tenants sacrifice distance to the market’s most densely populated neighborhoods by setting up shop in Wisconsin, they make up for it with rental rates in the mid-$4 per square foot range, almost $7 lower than some parts of North Chicago.

As for transactions, healthy dynamics continue to attract a diverse crowd and an inflow of institutional capital has supported an uptick in sales activity. These buyers are targeting larger assets, typically above 100,000 square feet, around O’Hare International Airport as well as properties in the I-55 corridor near Bolingbrook.

For example, Panattoni Development Company recently sold a 185,850-square-foot industrial spec building in Darien for $19.5 million. The building is partially occupied by an international tile distributor and e-commerce retailer, with the remaining 116,043-square-foot space still unleased. In Plainfield, Lee & Associates represented a user/private investor in the $1.24 million sale transaction for 23810 Industrial Drive, an 18,550-square-foot warehouse facility.

According to Marcus & Millichap, cap rates in these areas generally sit in the upper-7 percent band, but yields may vary based on features such as ceiling height and number of loading docks. In addition, private capital continues to impact the market by focusing on the abundance of older warehouses. Many are scattered across Chicago’s inner-ring suburbs, providing private investors with plenty of value-add options. Depending on location, yields in the high-9 percent realm can be achieved for some of these Class C assets.