While the vacancy rate decreased slightly to 11.3% in the eastpart of the I-80 Corridor, it actually increased about a fullpercentage point to 16.7% in the western portion, according to NAIHiffman's first quarter industrial market report. The I-80 Corridoris seeing land being grabbed up by developers. The proximity tointerstates and, particularly, railway intermodal access will helpthis submarket fare well as companies try to reduce costs with gasprices continuing to climb, says Adam Roth, senior associate withNAI Hiffman. By having space at an intermodal center, "they save atremendous amount of money on energy costs," Roth says. In oneexample, Bissell is having a 500,000-sf distribution centerconstructed on a build-to-suit basisat CenterPoint Intermodal Center in Elwood, IL, as previouslyreported by GlobeSt.com.

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Construction starts are slightly down from a year ago, with 1.5million sf for the first quarter of this year, compared to 2.2million sf for the first quarter of 2007, says Tim Brauer, managingdirector of CB Richard Ellis. "It is down slightly (but) this isnot a big time of the year for new construction to start, becauseof our weather conditions," he says. About 68% of the projectsstarted in the first quarter are speculative construction, downfrom 85% of new construction projects in the first quarter of 2007being constructed on a speculative basis, he says. Asking leaserates for newly constructed space are expected to increase as landand construction costs increase, Brauer says.

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A significant amount of the space will be delivered at the sametime, which is expected to cause an increase in the vacancy rate,Roth says. "People will have to be more aggressive to land a deal,"he says.

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Land prices have been escalating in the O'Hare submarket, withland values surpassing $20 per sf. As four to five million sf ofspace comes online within the next 12 to 18 months, there isexpected to be "high asking rates and a lot of vacant space," Rothsays. The I-55 corridor submarket remains sought after as it has alot of new space, Will County real estate taxes (which aretypically lower than Cook County) and proximity to the BNSFrailway, Roth says. Rental rates are expected to remain stablethroughout the first half of the year, he says.

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