By Steve Connolly, SIOR, Executive Vice President and Partner, NAI Hiffman
The I-80/Joliet Corridor Submarket has historically attracted some of the largest transactions in the market; at the same time it is among the most scrutinized by developers and investors. At the peak of the last cycle in 2006 and 2007, many national investors, developers and REITs with land positions in the Corridor developed speculative industrial projects. Shortly thereafter the global recession hit suppressing tenant demand and pushing vacancy rates to 20%. With limited tenants in the market, owners were forced to reevaluate their proformas and make tough deals to carry their projects forward.
As the market has recovered over the past four years and vacancy has returned to a more normal 11.5%, many investors are asking questions again about the future of the I-80 submarket. Most questions are centered on rent growth and speculative development. Some owners won't consider the sub-market given the pain endured during the past cycle but they will be missing an opportunity. When large requirements come to Chicago, many choose to locate in the I-80 Corridor and build-to-suits have historically been a driver for growth and activity in the area; this was true during the past cycle and as the market recovers this trend will continue.
Big Market — Big Deals
Regardless of investors' opinions of the I-80/Joliet Corridor submarket, it is too large a market to be ignored. The submarket totals nearly 65 million square feet and has quickly grown from only 20 million square feet in 1990. The area, combined with the I-55 Corridor submarket, has seen the most development during the past 20 years by far. Between 2003 and 2008 a number of large deals landed in the I- 80/Joliet Corridor, and many of these were build-to-suits. The following is a list of build-to-suit transactions over 400,000 square feet completed in the I-80/Joliet Corridor between 2003 and 2009:
As the economic recovery has progressed over the past few years, several large build-to-suit projects have been announced or completed in the I-80/Joliet Corridor submarket including:
Build-to-Suit Drivers – The I-80/Joliet Corridor submarket historically offers numerous available options for users. Several factors have contributed to the build-to-suit activity in the area.
- Larger, specialized requirements – Big requirements need ample land and the I-80/Joliet Corridor is one of the few areas it can be found. In addition, as requirements have grown in size, many large users have specialized requirements for trailer parking, clear height, maximum loading, bay sizing, and floor loads.
- Technology Innovation – Many users today are making significant investments in material handling equipment and inside-the-box technology to improve efficiency, reduce labor costs, and provide better inventory management. In many cases a building is designed and built around the material handling system making a state-of-the-art build-to-suit a better alternative versus retrofitting an existing building.
- Entitlement, Utilities, and Experience – The Corridor has over 25 business parks that are "shovel ready" with entitlements completed and utilities in place to deliver a large building inside of nine months.
- Intermodal Development – The I-80/Joliet Corridor is home to the BNSF and UP intermodal ports. These are multi-billion dollar investments designed as a driver for global transportation. Leading import companies like Walmart and Home Depot have developed build-to-suits within these intermodal ports, seeking to improve their supply chain and lower transportation costs.