O’Hare’s inventory crisis puts additional pressure on brokers and business owners in search of space

Billions of dollars are being spent by the FAA on the ambitious modernization of Chicago’s O’Hare International Airport, but the developers and their investing partners are also spending a lot of money on the sprawling industrial building stock of the submarket that surrounds the airport.

As demand for industrial space around O’Hare continues to skyrocket, the competition for these rare development opportunities around the airport and the tangle of interstate interchanges are following the same linear trajectory. Except that there is a big problem: there is really no more room to grow.

In many ways, the submarket could be seen as a victim of its own success. Lack of space in and around O’Hare is not a new issue – the area is already a very developed and mature submarket. But the history of both the airport and industrial expansion in O’Hare is unprecedented to say the least.

In 2009, the town of Bensenville gave up its fight against O’Hare’s expansion plan, paving the way (literally) for more leads. Over the next few years, hundreds of houses were destroyed and new trails sprung up in their place. And then earlier this year, Prologis and ML Realty made headlines for the buyout of individual owners in a Bensenville subdivision to create even more developable space around O’Hare.

Except this time, the reclaimed land will be used for industrial facilities.

Picking up houses in the subdivision, located near the southwest corner of O’Hare’s footprint, may seem extreme, but it indicates the efforts the developers will put in to reclaim the land for further expansion. The town of Bensenville could very well disappear from the map one day, as the airport and the industrial economy that surrounds it continue to permeate land currently used for residences, businesses or offices.

According to the latest third-quarter figures from an NAI Hiffman report, the industrial vacancy rate for the O’Hare submarket was just over 3.5%, which is even more aggressive than the industrial vacancy rate. 5.1% overall vacancy for the Chicago metro area. And while O’Hare is one of the region’s largest industrial submarkets by volume, with a combined total of 103 million square feet of space, there were only 400,000 square feet. new projects under construction at the end of September.

“There is no immediate sign that things are slowing down.”

Candace Scurto, Brown Commercial Group

The numbers can be a bit confusing, especially in the wake of an industrial bull going through a unique pandemic. And while passenger flights declined dramatically in the first months of the pandemic, cargo flights persisted as supply chains were pushed to the brink.

“You use the phrase ‘help make sense of the numbers’ and I have a hard time understanding the numbers,” Joe Bronson, executive vice president of NAI Hiffman told REjournals, while discussing the latest statistics and trends. market for O’Hare. “We have the largest industrial park in North America and everyone wants to be there. “

“But that’s the craziest part I keep coming back to,” Bronson continues. “They’re not building 50,000 square foot buildings anymore – they’ll never do it again, it’s just too expensive.”

With such a low vacancy rate and a small amount of new space under construction in O’Hare, it can be very difficult to find the right location for a tenant client, Bronson adds. And it’s not just because there are other competitors; part of it is just what many existing owner-operators have.

“It’s like we’re running towards zero. I’m afraid there is no option in six months because they can’t build these new buildings fast enough, ”Bronson says of the extremely low availability in the submarket.

The vacancy rate and the available inventory of industrial premises in the Chicago subway. Chart via NAI Hiffman.

And the numbers don’t lie. When there is such tight competition and so little room for growth, Bronson’s warning shouldn’t be seen as alarmist, per se. It is simply the reality of the situation. Instead, things could get even more interesting.

“There are a lot of people who show up late to the party, but who knows what time the party ends,” he says of the boom. “When Sam Zell shows up at the party it’s very surprising because he only shows up at the best time… and that means there is still a lot of leads left.”

Candace Scurto, a broker with the Brown Commercial Group, says this is the busiest moment she’s seen in her budding career. And the momentum is expected to continue throughout the winter season.

“There are no immediate signs of slowing down,” Scurto said of the current momentum in the O’Hare submarket. “Usually at this time of the season before the holidays it can get a little slower, but we haven’t experienced that. It’s just crazy.

Scurto highlights the same problem Bronson encountered with his clients, namely the challenge of finding space for homeowners. And the search can take an extremely long time. She mentions particular experience working with a construction company that showed extreme patience and diligence in their research.

“This deal was done in 2020, but we’ve spent about three years looking for it,” Scurto said of the long process. “Their needs were somewhat specific, so no building ever seemed to suit them, but we eventually found this building. We explored options outside of the O’Hare market just from billing prices, but ended up landing them in Bensenville.

Ultimately, many carriers and businesses just need to be in the O’Hare market, suggest Scurto and Bronson. And the pressure on business owners to find space for expansion or reach will continue to intensify as the region prepares to plunge into the cold winter months.

“The driving time costs are high and you can’t really run your business driving more than 70 miles a day,” Scurto explains of the need for many businesses to be located in the O’Hare submarket. “It’s just easier to be centralized with the main transportation routes where they can go anywhere at any time. “

This story also appears in the November issue of Chicago Industrial Properties.

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