"We're seeing the effects of shock therapy to the economy," says Richard M. Gatto, EVP of the Alter Group. "Lower interest rates have spurred firms to own their own buildings rather than lease."

The report showed that a predominance, 87%, of the new build-to-suit space in the first half of 2001 was manufacturing or warehouse space, a fact somewhat at odds with the manufacturing slump that has afflicted the Chicago area for at least 18 months.

On the other hand, those industrial businesses that are weathering the slump may have the wherewithal to take advantage of low interest rates to invest in their own real estate. The largest Chicago-market build-to-suit in the first half of 2001 was an 800,000-sf industrial facility for SLS Inc. in southwest suburban Manteno, IL. SLS, a Pennsylvania-based company, makes precision medical and electronic instruments. SLS has posted lower profits in recent quarters but is still operating in the black.

"The office build-to-suits were hurt by the strong sublease market and the aggressive concession packages offered by developers and speculative product," says Gatto, citing free rents, tenant improvement and moving cost allowances.

According to the report, the largest percentage increase in area build-to-suit movement was in Lake County, a 275% increase since the first half of 2000, with a total of 500,700 sf of BTS created in the period. Cook County, the backbone of the industrial market, also grew 43% in BTS, to 1.32 million sf. Kenosha County, in southern Wisconsin, saw 1. 29 million sf of activity, and Will County, southwest of Chicago, tallied 1.895 million sf.

The relatively small market of McHenry County increased to 49,000 sf in the first half of 2001, compared with none for the first half of 2000 and 10,000 sf in the second half of that year. That probably reflects interest in far-flung McHenry--the extreme northwest of the Chicago market--as a place for cheaper land.

Going against the current is the relatively built-up DuPage County, west of Chicago, down 62% for the same periods. Kane and Will counties posted more modest declines of 10% each.

Instant Insights /

Build-to-Suits Expand Dramatically in First Half of 2001

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