Warehouse development surged during the pandemic. Now, it’s ‘a more normalized market.’

In the decades after World War II, Allstate and other corporate giants built their headquarters on vast tracts of land along the Tri-State Tollway.

The old Allstate campus was a traditional suburban office environment with lush landscaping, reflecting ponds and thousands of workers. That property now is called the Logistics Campus, a massive industrial development underway in Glenview.

The project, part of a warehouse building boom across the Chicago area, has an estimated price tag of some $500 million. Developer Dermody Properties expects the first phase alone — comprising five buildings and about 1.2 million square feet — should be done by the second quarter of this year.

“The ability to put modern industrial in the middle of an established community — it’s unique in the sense that there will be very few other sites of this size that can replicate what we’re doing,” said Neal Driscoll, Dermody’s Midwest region partner.

Development of big-box industrial space in the Chicago region set a record in 2023 with construction of 70 buildings totaling nearly 33 million square feet, according to a recent report by commercial real estate company Colliers International.

While the market has showed signs of cooling off, experts suggest it’s trending back to pre-pandemic norms.

“We’re returning to a more normalized market,” said David Bercu, executive vice president of Colliers. “What we experienced during COVID and post-COVID was really unprecedented in terms of the demand for industrial space in the suburbs.”

‘Insatiable appetite’

In West Chicago, a 45-acre site in the DuPage Business Center now is under contract with Becknell Industrial. The business park, home to an Amazon distribution facility, has precious few properties available to develop.

“I wish I had more,” said Mark Moran, an executive vice president at NAI Hiffman, the commercial real estate firm marketing the campus south of Roosevelt Road.

The pandemic-induced surge in online shopping helped fuel the demand for warehouse and distribution space. Third-party logistics providers also were forced to take on additional inventory to protect themselves against supply chain disruptions, Moran said.

“Tenant demand has remained strong. If anything, my sense is we’re going to have a supply issue because of the fact there hasn’t been any new spec development lately,” Moran said, referring to projects built without a specific user in mind.

Last year, Unilever signed a lease for a 1.1 million-square-foot space in New Lenox near the Interstate 80 corridor, one of the largest transactions in 2023, Colliers noted. Target also snapped up a 1.4 million-square-foot space in Joliet.

At the end of last year, 27 big-box projects amounting to 14.2 million square feet were under construction — down from 18.6 million square feet at the end of 2022, Colliers reported.

“There’s a lot of product that’s being developed right now, which was built as a result of the insatiable appetite that happened during the pandemic,” Bercu said. “But we saw a lot of equity capital being somewhat conservative, which has brought a slowdown in the development pipeline currently.”

Bercu still has a bullish outlook, citing possible interest rate cuts by the Federal Reserve as one reason for optimism.

“There’s a good equilibrium between supply and demand,” Bercu said. “Landlords are still able to push rental rates. But yet tenants have a little more product to select from than they did previously when the market was extremely tight, and they virtually had no choices.”

‘Back to normal’

Allstate announced in 2021 it was selling most of its corporate campus to Dermody Properties for about $232 million because many of the insurer’s employees were “choosing to work from home,” a company spokeswoman said at the time.

Dermody, which has its headquarters in Reno, Nevada, and a Midwest office in Rosemont, acquired 232 acres. The accessibility to the interstate was “extremely appealing,” Driscoll said.

“We’re really doing our best to respect all the previous landscaping design that was there and really kind of drop this industrial project into the previous infrastructure,” Driscoll said.

The expansive property was annexed into Glenview. Other suburban communities haven’t been so receptive to office-to-industrial projects, even as some experts think hybrid work is here to stay.

“The biggest obstacle has really been the noise and the amount of truck traffic that gets generated by an industrial project,” Bercu said. “This is not everybody’s cup of tea.”

The former Allstate campus, however, has some buffer from residential areas. When complete, the logistics park could encompass 3.2 million square feet and create somewhere between 2,000 to 3,000 jobs, Dermody estimates.

“We have the ability to design it in such a way that the vast majority of the truck movements and car movements etc., all happen inside the park as opposed to being out in the public roadways,” Driscoll said.

Potential tenants are “interested in these buildings not just to distribute their product but also to be able to hire a pretty strong workforce,” he said.

“We’re getting a lot more activity than we anticipated from light assembly … from processors or light manufacturers,” he said.

During the pandemic, industrial developers could not build fast enough, Driscoll said.

And now?

“We're just kind of back to normal, and everyone has been so used to this torrid pace that normal feels slow,” he said. “But the reality is I think we’re in a very comfortable and healthy, balanced point right now.”