No Tenants Yet, but Developer Plans Four Big Warehouses
Thursday, December 17th 2015
CHICAGO, IL – A developer betting on a strong industrial leasing market is preparing to build more than 2.3 million square feet of warehouse space in the Chicago area without any tenants signed.
Sacramento, Calif.-based Panattoni Development plans to start building three buildings in southwest suburban Romeoville and another in Franklin Park near O’Hare International Airport in 2016, all on speculation—or without tenant commitments—according to Jason Rosenberg, a senior development manager at the firm.
Panattoni has a strong market on its side. The Chicago-area industrial vacancy rate was 7.26 percent in the third quarter, just above the previous quarter’s 14-year low, according to Seattle-based Colliers International.
“We’ve obviously bullish on the market,” Rosenberg said. “Across the market, fundamentals are very strong. In particular, leasing activity on Class A buildings is really strong.”
This year 8.4 million square feet of spec projects have been completed, up from 5.1 million square feet the previous year, according to Colliers. This year’s spec volume is the highest since 13.4 million square feet was built in 2008, before such projects came to a virtual standstill the next four years during a real estate swoon.
SHORTAGE OF BIG SPACES
There also are 8.6 million square feet of spec projects under construction locally, according to Colliers.
Even so, few large buildings are available, particularly along Interstate 55, where three of its new projects are planned, Rosenberg said.
In the second-largest spec project in the area in five years, Panattoni plans a 787,200-square-foot distribution center on 76 acres of farmland in Romeoville that it bought earlier this month for $8.4 million, Rosenberg said. That project on Airport Road, east of Weber Road, will start in the spring, he said. By summer, Panattoni plans to start work on a 400,000-square-foot warehouse next to the larger building, Rosenberg said.
Five prospective tenants are seeking 600,000 square feet or more near I-55, with few existing options and few available development sites, said Colliers Principal James Estus, who is handling leasing of the two buildings on the site along with Cushman & Wakefield Executive Director Jason West.
“That’s what prompted them to take the level of risk they’re taking with such a large spec building,” Estus said.
‘GREAT SUCCESS’ IN ROMEOVILLE, I-55
Also in Romeoville, Panattoni plans to begin work in the spring on a 675,000-square-foot warehouse at Southcreek Parkway and Taylor Road, Rosenberg said.
“We’ve had great success in Romeoville and 55 on spec projects,” Rosenberg said. “Finding big-box sites has become next to impossible, and both of these sites took two to three years to get under control.”
Near O’Hare, Panattoni paid $20 million Dec. 14 for a building owned by Oak Brook-based metal distributor A.M. Castle that it plans to level and replace with a new 491,089-square-foot warehouse, Rosenberg said.
A.M. Castle in July announced plans to move operations from Franklin Park and Minneapolis facilities to a new bar processing center in Janesville, Wis. A.M. will be moved out by February, and the building at 3400 Wolf Road will be demolished in time to begin construction of the new warehouse in the spring, Rosenberg said.
“It will be one of the few buildings of that size in the O’Hare market,” said Colliers Principal Fred Regnery, one of the brokers who will handle leasing of the Franklin Park project.