November 2011

Lake County industrial market sees strong third quarter

As seen in RE Journals
Lake County may not be recognized as a core industrial market, but with a string of recent deals and strong positive absorption, commercial real estate brokers are high on the northern Illinois market.

Things are going well in the Lake County industrial market as the area is coming off of a positive third quarter that experienced more than 700,000-square-feet of positive absorption. Activity is building momentum and brokerage professionals are anticipating a strong fourth quarter to close out the year.

According to research from NAI Hiffman, the Lake Co. market has experienced 1,067,497 square feet of positive absorption in 2011, with 792,153 square feet of activity coming in the third quarter alone. This brought the vacancy rate down to 10.3 percent.

The market comprises roughly 66 million square feet of industrial space, making it the fifth largest submarket in the Chicago area, according to the NAI report. However, despite its size and recent activity, the market is never quite considered the industrial powerhouse other areas such as the I-55 corridor and I-80 corridor on the southwest side of the metro area. Simply put, it does not have the capacity to attract large-scale distribution operations.

“Overall, it is not a market that has many 500,000-square-foot buildings,” says Robin Stolberg vice president of industrial services for Jones Lang LaSalle. “Historically, there has been a real presence of mid-sized companies in Lake County. A lot the buildings are operated by user-owners.”

Lake County has always been considered more of a residential market with pockets of corporate activity. Fortune 500 companies like Abbot, Baxter, and Walgreens, call Lake County home. The trend is for firms to occupy a large corporate campus, but this does spawn ancillary activity as suppliers and third-party providers desire space in nearby locals.

Some developers have attempted to capture these firms in recent years and numerous speculative facilities went up at the height of the real estate boom. Many of the recent deals have taken advantage of this as firms are filling this vacant Class A space.

“We had an excellent quarter,” says Steve Sullivan, vice president in the Industrial Services Group at NAI Hiffman. “We have had an inventory of Class A industrial product that has been sitting empty for more than two years. Companies were looking at the market, waiting for the fundamentals to improve. The product was there for the taking.”

The biggest deal in the second quarter was a 200,000-square-foot lease by High Sierra in Gurnee. The sporting goods retailer took space in a speculative facility developed by CenterPoint Properties at 705 Tri State Parkway. The building is a part of the firm’s $117 million CenterPoint Business Center – Gurnee development.

“That was a monster deal for the corridor,” says Sullivan. “High Sierra went from 45,000 square feet to 200,000 square feet.”

In the second quarter, another large speculative facility was absorbed as Sysmex, a Japanese-based healthcare firm, signed a lease 146,850 square feet in Bridge Development’s Aptakisic Creek Corporate Park in Buffalo Grove. The firm also leased a 163,739 class A office center across the street, which Bridge Development marked for sale in September.

Sullivan also noted that Hearthware Home Products expanded its lease from 75,000 to 200,000 square feet in Libertyville earlier this year.

Taxes are part of the discussion…

Expansions of existing firms has played a large role in the recent activity, but frequently brokers field inquiries from neighboring Cook County firms looking to lower their tax base.

“Taxes are always an item of discussion,” says JLL’s Stolberg. “Whether it is a sale or a lease, there is a substantial tax difference between Cook County and Lake County.”

However, Lake County itself may now be under fire as Wisconsin has now targeted Illinois companies in the wake of the Prairie State’s decision to increases its corporate tax rate to 7 percent. That is still below Wisconsin’s 7.9 percent rate, but the state has been aggressive with its financial incentive packages to help off-set the difference and it touts its lower cost of labor as a strong draw. Several firms have made the move in the past year. Catalysts Exhibits, one of the first to do so, announced a pending move from Crystal Lake in March to a 144,000-square-foot facility in Kenosha County.

Stolberg says that bigger firms are taking this seriously and many have taken a hard look at the prospect of relocating to Wisconsin.

“The 20,000-square-foot user in Buffalo Grove isn’t looking at Pleasant Prairie (Wis.), but the 100,000-square-foot user in Waukegan is,” says Stolberg.

4th quarter…

A prime example of this can be seen in U-Line, a shipping supply company that announced its move to Wisconsin from Waukegan in 2008. The firm left behind roughly 600,000 square feet of space.

Yet as activity picks up, NAI’s Sullivan believes that several local operations will look to expand into that space, potentially making for a very strong 4th quarter.

“I think the 4th quarter is going to be fantastic as well,” says NAI’s Sullivan. “Several deals are pending and I think we are going to see a lot of the space vacated by U-Line back filled this quarterA lot of entrepreneurial talent lives nearby and owners want to be in close proximity to their homes and employee base. We are thrilled that local companies are expanding again.”

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