TUESDAY, JUNE 23, 2009

I-55 Corridor: Vacancy less than expected

Chicago -> Will/Grundy

J.D. Salazar

by J.D. Salazar, SIOR
Managing Principal
Champion Realty Advisors LLC

There are times in life when you just have to be happy that things are not as bad as they could be. First Quarter statistics for the I-55 Corridor are a perfect example.

With a severe national and world recession, high unemployment, reduced consumer spending, extremely tight financial markets and a general feeling of depression gripping the Chicago commercial/industrial real estate market, we expected First Quarter I-55 Vacancy to approach, if not surpass, the 20% mark. While an 18.39% vacancy rate is scary it does represent a victory of sorts. A review of the market reveals that the bulk of increased vacant space came from speculative projects that were completed and added to available inventory. There are currently no new speculative projects under construction in the I-55 Corridor.

Also helping to keep the vacancy rate from escalating was a lack of sublease space coming to market. So far companies are not giving space back to the market at any greater pace then in 2007 and 2008. Some credit for keeping sublease space off the market goes to I-55 landlords who have been assisting their tenants with temporary reduced rent structures and other financial assistance in an effort to not have empty space.

Transactions

A total of approximately 535,500 sq ft of lease transactions were completed in the First Quarter of 2009 as compared to 724,000 sq ft completed in the First Quarter of 2008. The largest lease transaction of the First Quarter was the 150,249-sq-ft lease at 771 W Crossroads Parkway in Bolingbrook. The long-term lease between Saratoga Specialties, a dry spice manufacturing company, and Corum Development, a Denver based developer, was reported to be valued in excess of $7 million. Tenant Improvements included 15,000 sq ft of office space and 20,000 sq ft of production/lab space. With the lease to Saratoga Specialties, Corum's 269,662-sq-ft spec building is 56% leased.

The other notable lease this quarter was IDI's leasing of a 53,220-sq-ft, 60-door freight terminal facility in Bolingbrook to Central Freight. The facility was originally a build-to-suit for Toyota. According to market sources, the five-year lease had a base triple net lease rate of $603/door/month with annual escalations. Tenant improvements consisted of fencing the site and the installation of edge-of-dock levelers.
There are several lease transactions pending that could be completed in the Second Quarter. Most significant among them are OHL's search for 275,000 sq ft and Honeywell's 125,000-sq-ft requirement.

Many local industry professionals are beginning to believe that the recession is at the bottom. Expectations are that we may continue to operate at the bottom for several more months with an uptick in the economy beginning sometime in the late Third Quarter of 2009.

Landlords will continue to be very aggressive in pursuing new tenants and keeping existing tenants in the Second Quarter. Investment sales are by and large still stalled due to the market's inability to close the gap between buyers' expectations and sellers' expectations on CAP rates and underwriting criteria, as well as tight lender requirements.

Coffee machine maker leases warehouse Henrick gets Frank Mahoney Award The return of capital Sweet deal in Columbus: ProLogis ensures that the cookies will arrive Antczak joins Grubb & Ellis JLL: Industrial real estate close to market bottom Richard Antczak joins Grubb & Ellis Manufacturer buys Chicago building AIRE honors sponsors, volunteers AIRE welcomes new members