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Short supply to continue for Chicago’s suburban industrial market

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There are no signs of slowing down for industrial assets in Chicago’s suburban submarkets heading into 2019, with tenant activity driving considerable absorption and construction starts. And as demand outpaces supply, these users continue to find space shortages in many parts of Chicago, according to a new report from Brown Commercial Group, based in Elk Grove Village, Illinois.

Tenants fly toward O’Hare

Availability is particularly tight in the O’Hare submarket, where vacancy achieved a new record low of 3.02 percent. New speculative buildings are projected to deliver in spring 2019, which will move up the vacancy rate and offer some relief. These new developments should lease up quickly because of the high demand for distribution spaces near the O’Hare airport hub.

“The outlook for Chicago’s industrial market in 2019 remains strong, with continued business expansion and low vacancy rates creating a rush to find space,” said Trinity Scurto, senior vice president with Brown Commercial Group. “We’re also seeing some businesses decide to buy instead of lease, so they secure additional space to grow into and gain the benefits of ownership.”

Eight speculative projects are currently under construction near O’Hare. But as demand remains high, especially for larger spaces, these new developments should lease up quickly because of the need for distribution spaces near the O’Hare airport hub. This lack of available space, especially in larger and more technologically advanced buildings, has led to the development of the $1 billion Elk Grove Technology Park by Brennan Investment Group.

“We have been gratified to see the incredible demand from high-tech industrial and clean manufacturing firms, as well as data center providers,” said Michael Brennan, chairman and managing principal of Brennan Investment Group.

The project is one of the largest of its kind in the country and will accommodate digital manufacturing, robotics and data center companies. Nine planned industrial facilities will make up Elk Grove Technology Park, first announced last year. The proposed buildings range in size from 73,829 to 243,691 square feet, divisible. All buildings will feature pre-cast construction, high-end glass facades, state-of-the-art systems and fixtures, 32-foot ceiling clearance and ample loading and automotive parking.

The technology-forward business park will also lure in tenants with modern aesthetics, including cultured landscaping, sculptures, water features, bike paths and pedestrian walkways. The first speculative facilities will have frontage on Higgins Road and face the park’s main water features and walking path.

The attraction of DuPage County

The report also notes considerable activity in the DuPage County submarket, as businesses look for lower operating costs and more options for expansion. The county was named one of the top 12 manufacturing communities in the nation and has access to $1.3 billion in federal grants through the U.S. Department of Commerce and the Investing in Manufacturing Communities Partnership Initiative. Because of this, DuPage County could be a hub for new manufacturing developments well into 2019 and beyond.

“Throughout the suburban market, we expect to see continued expansion by the manufacturing and distribution sectors, as well as all the businesses—packing, sorting, third party logistics providers and others—that feed into e-commerce and general manufacturing,” Scurto said.

In August, the 800-acre DuPage Business Center in West Chicago, Illinois, signed leases with two manufacturers, Norix and Suncast. Norix, a manufacturer of contract furniture specifically engineered and designed for continuous-use environments, signed a $2.7 million agreement to build a new, 200,000-square-foot, LEED-certified global headquarters on 22 acres. Suncast, a market leader in custom wood structures and high-quality resin products, signed a long-term agreement with developer Pritzker Realty Group to lease a 782,000-square-foot facility. The $4.9 million land deal will pave the way to consolidate Suncast’s Batavia and Montgomery locations into a new warehouse spanning 40 acres.

The suburbs in 2019

The trends that will shape the suburban industrial market in 2019 include rental rates, outdoor storage, parking, expansion and ownership.

Particularly in prime submarkets, rental rates should continue to edge up, perhaps in the 3 to 5 percent range. A similar uptick should occur on the investment side as well, as a shortage of high quality investment property will push up pricing, with some investors predicting an increase of as much as 5 percent.

Properties with outdoor storage will continue to fetch premium rents. And many industrial businesses, especially those with distribution requirements, require adequate space for truck, trailer and employee parking. Some are looking for off-site parking for their holiday and general e-commerce distribution needs.

Corporate confidence is strong and companies are planning for how and where to expand. Buildings that can accommodate growth are highly sought-after in today’s market. Many businesses are looking at five- to seven-year growth plans and how that impacts space needs. Brown Commercial recommends that user be prepared to move quickly should the right space materialize. They note that many users consider if buying makes sense, with some businesses buying larger buildings and leasing excess space for now, in essence, “banking” space for their future needs.

Sourced by RE Journals