I-39 corridor attracts international firms and manufacturers as activity increases

September 27, 2011  |  Mark Thomton  |  Print Article  |  Email this Article

For decades, the Midwest has watched numerous manufacturing operations and jobs shift to overseas locations, but as recent activity in the I-39 corridor shows, manufacturers are starting to take a longer look at the U.S. for possible expansions and relocations.

“If I’m right, and I think I am, manufacturers will start building in the Midwest again,” says Mark Goode, Partner at Venture One Real Estate, LLC.

Goode has placed his bets on the I-39 corridor being an ideal location for future growth in the Chicago area, traditionally the hub of Midwest activity. And while the future may indeed turn out to be very bright, the present isn’t exactly shabby.

According to the I-39 Logistics Corridor Association, from 2009-2010 the I-39 Corridor booked more than 3.3 million square feet of commercial space, representing new investment in excess of $1.427 billion, up 65 percent from the 8.2 million square feet booked during 2007-2008, which was valued at approximately $920 million.

Nippon Sharyo Ltd., of Nagoya, Japan recently broke ground on a a 465,556 SF plant in Rochelle, Ill.

The 2009-2010 numbers represent 57 total deals, including 1,730,000 square feet of leasing activity in existing buildings and 1,570,000 square feet of new development activity in the form of expansions to existing buildings and build-to-suits. Of all these transactions announced during the time period, 30 were with companies new to the corridor, representing a significant influx of capital; two were with new start-up companies; and 25 were expansions and leases of existing facilities for companies already in the corridor.  The average deal size in 2010 was 63,000 square feet, a 40 percent increase over 2009’s average size of 25,200 square feet.
A significant portion of these deals were from manufacturers expanding, or, locating to the Midwest for a competitive advantage.

It’s not easy to judge by employment numbers alone, but U.S. manufacturing is actually stronger than it has ever been. What the sector has lost in its employment base, it has gained in its productivity. The Federal Reserve Bank of Chicago reports that productivity in the U.S. is at an all-time high. What took 1,000 workers to accomplish in 1960 now only requires 184. Of course, this is because of the increase of automation and mechanical assistance, something that has benefitted manufacturers, but not necessarily the workforce. For the past 60 years, employment in the manufacturing has declined -0.1 percent annually, while growth of nonfarm employment averaged 1.9 percent per year, according to the Federal Reserve. The nation’s jobs have shifted to other areas, while manufacturing has remained stagnant. In 2006, the U.S. economy employed about as many workers in manufacturing as in 1950, slightly more than 14 million.

The Midwest has always been heavily exposed to the manufacturing industry and has felt the pinch more than other regions.

In 2000, manufacturing jobs in the Midwest made up 19.1 percent of all the manufacturing jobs nationwide. Now, manufacturing jobs in the region make up 18.6 percent of the manufacturing jobs held across the country, according to the Federal Reserve.

Yet as fuel costs are predicted to rise in the future and labor situations evolve overseas, the trend of a stagnant manufacturing workforce in the U.S. may see a reversal.

“Some companies that moved manufacturing offshore to China, India, Mexico and Vietnam in the mid-1990s are moving back — most recently from Thailand, India and China — because the price of oil to transport product is greater than the savings in offshore labor costs, which are on the rise in developing countries,” said Janyce Fadden, executive director of the Rockford, Ill-based I-39 Logistics Corridor Association.

The Boston Consulting Group reports that direct pay and benefits for U.S. production workers averages approximately $22 per hour, compared to $2 per hour in China.  However, in China, the cost of skilled labor will increase 17 percent annually for the next five years, compared to a projected increase of 3 percent annually in the U.S. If this projected increase takes place and fuel costs remain elevated, the firm predicts that the point of diminishing returns will be met by 2015. In short, China soon may not enjoy the competitive advantage it does today.

“Companies are realizing that if their consumers are going to be here they need to have a facility in U.S.,” says Venture One’s Goode.

Goode need look no further than a recent win for his firm in Loves Park, where Danfoss Drives, a Havnbjerg, Denmark-based manufacturer of variable-speed drives and electronic motor controls, began construction on a 100,000-square-foot manufacturing facility at the Loves Park Corporate Center.

The firm looked at sites in Denmark, China, and other U.S. locations, but ultimately settled on the I-39 corridor location, where 70 percent of the products it manufactures will be exported, says Goode.

One of the biggest deals to hit the corridor in the past two years was with Nippon Sharyo U.S.A.  The Arlington Heights-based company’s 115-year-old parent company, Nagoya, Japan-based Nippon Sharyo Ltd., makes electric commuter and high-speed railcars including the famous “Shinkansen” bullet train, but had no manufacturing capabilities in the U.S.

In April, the firm began construction of a 465,556-square-foot, $35 million manufacturing facility at Prologis Park-Rochelle.  There, the firm is expected to hire approximately 300 employees by 2013 to deliver 160 double-decker electric commuter railcars for Metra in a contract worth $560 million, according to Jason Anderson, economic development director for the City of Rochelle.

Firms such as Italian-owned Fiat, Kerry Group of Ireland, and Wanxiang Group Companies of China, have also expanded in the corridor (See Pullbox).

If there truly is to be an increase in manufacturing firms in the U.S., the Corridor Association’s Fadden likes the I-39 region’s chances of attracting more companies. It has a geographical advantage of being a toll-free north-south expressway from Madison, Wisconsin to Bloomington, Ill., and it forms crossroads with several large east-west highways, such as I-88 and I-80. The area also benefits from being close enough to Chicago to enjoy the infrastructural benefits of a major market, but far enough away to have only the fraction of the traffic.

“The location allows companies to deliver to a diverse customer base cost effectively,” says Fadden.

Fadden says the area is also attractive to firms because it has a strong manufacturing labor force, but does not command as high of a price as Chicago labor. The area has supported the auto industry in Belvidere and the aerospace industry in Rockford for decades.

“I like to think that the I-39 area and labor force is machine ready,” says Venture One’s Good. “It won’t take a lot of training and dollars to get the employment base ready. There is a manufacturing tradition here.”

Completed Deals

Within the last four year, the following multi-national corporations have located or expanded within the I-39 corridor totaling more than 1,300,000 square feet.

•Fiat, Turin, Italy – As a result of a major investment in Chrysler in 2009, the 112-year-old Italian auto giant, Fiat (an acronym for Fabbrica Italiana Automobili Torino), and Chrysler formed the Chrysler Group LLC, which paved the way for a 500,000 SF expansion of the 3,300,000 SF auto assembly plant in Belvidere, Ill.
•Nippon Sharyo Ltd., Nagoya, Japan – This 115-year-old company’ subsidiary, Nippon Sharyo U.S.A., is constructing its first manufacturing facility in America – a 465,556 SF plant in Rochelle, IL – to make electric commuter and high-speed railcars for the U.S. market.
•Kerry Group plc, Tralee, Ireland –A world leader in food ingredients and flavors serving the food and beverage industry in more than 120 countries. Three years ago, a division of the company, Kerry Ingredients & Flavours, established its regional headquarters in a $50 million, 250,000-square-foot innovation and technical center in Beloit, Wis, to service customers in the U.S., Canada and Latin America.
•Danfoss Drives, Havnbjerg, Denmark –This 78-year-old manufacturer of variable-speed drives and electronic motor controls has begun construction on a new 100,000-square-foot plant at the Loves Park Corporate Center in Loves Park, Ill.
•IMC Group, Tel Aviv, Israel – Since 1889, Ingersoll Cutting Tools, a member of the IMC (International Metalworking Companies) Group, has offered the widest range of metal-removal tooling products in the world.  The North American headquarters and production facility is located in a new 50,000-square-foot expansion of its 235,000-square-foot facility in Rockford, Ill.
•Wanxiang Group Companies China, Xiaoshan, China – When Elgin, Ill-based Wanxiang (Chinese for “universal joint”) America Corporation, the company that serves the U.S. market for China’s biggest auto-parts supplier, set out to compete on the global stage, it built a 40,000-square-foot (expandable to 160,000 SF) solar-panel assembly plant in Rockford. Ill.

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