Industrial N Illinois

E-commerce, technology and logistics dominate industrial market in 2017

  
E-commerce, technology and logistics dominate industrial in 2017,ph01

For the past several years industrial has been one of the most competitive and in-demand sectors in Chicago and across the country. Market fundamentals have improved within the last year, and the balance of supply and demand remains healthy.

Chicago has been particularly busy in the last few months, offering up everything it can to Amazon on a silver platter. Chicago’s proposal for Amazon’s second headquarters listed 10 possible sites for the retail giant’s HQ2, and the city has attempted to put its best foot forward. The whispers of Amazon have prompted a steady stream of new renderings and partnerships throughout the city.

Sterling Bay pitched its Lincoln Yards site to Amazon, which included a mega mixed-use project and Amazon’s own sports and concert venue. Mayor Rahm Emanuel and Gov. Bruce Rauner announced a public-private partnership with Related Midwest and University of Illinois for the Discovery Partners Institute, which would be a centerpiece on the Near South Side development named The 78.

E-commerce, technology and logistics have a huge influence over the industrial sector and related sectors. And even just the possibility of attracting Amazon has spurred activity. For some it’s clear that Amazon’s HQ2 would be a huge win for the city, but some experts have a few reservations.

“It would be a great economic engine for the city. Making that kind of investment and hiring that workforce with the wage levels they’re talking about—it would be a huge economic benefit. However, whether we are equipped to compete for something like that is yet to be determined,” Jason West, Executive Managing Director at Cushman & Wakefield, told RE Journals.

Despite how Amazon has dominated the headlines, there is a lot more to the industrial market. Examining the Chicago industrial market indicators for the past few quarters shows that industrial real estate remains a strong, attractive property type. Throughout the past year, overall vacancy rates in the market have fluctuated between 6.3 percent and 6.7 percent, according to reports from Cushman & Wakefield. Net absorption year to date sits at 14.1 million square feet, with nearly 12.3 million more square feet under construction.

“E-commerce is a demand driver, but in Chicago there is also a robust food and beverage industry on both the manufacturer and distribution side. Retail has driven a lot of activity because there has been a lot of adjustment in distribution footprints. Some retailers are adding e-commerce supply chain, while others are shifting buildings or growing their own distribution networks,” West said.

Looking at key lease transactions across several submarkets and quarters, it’s clear that the most active areas have been the I-80 and I-55 corridors. Most of the new leases in these corridors have been signed by food or beverage companies, logistics or e-commerce tenants looking for warehouse or distribution space.

Some notable leases include Mondelez, which renewed its lease at 100 Prologis Way in the I-80 Corridor for 806,000 square feet. In the I-55 Corridor, Kimberly-Clark renewed its 716,000-square-foot warehouse and distribution lease at 1401-1465 W. Normantown Road, while Menasha Packaging signed a new lease for a 269,000-square-foot warehouse and distribution facility at 550 W. North Frontage Road.

Many of the key sales this past year have been industrial portfolios acquired by companies with a national reach. In the first quarter of the year, Cabot properties sold 16 buildings in Illinois, totaling 1.9 million square feet, that were part of a 185-building portfolio. The company sold these properties to DRA Advisors. Also in that quarter, WMS Industries sold a 365,336-square-foot manufacturing facility at 800 South Northpoint Blvd. in Lake County.

The second quarter saw three major portfolio sales throughout several submarkets with a variety of building types. High Street Realty sold a 17-building, 1.39-million-square-foot portfolio to Blackstone, Colony Realty Partners sold an eight-building, 1.18-million-square-foot portfolio to Torchlight Investors and Bridge Development Partners sold a three-building, 685,000-square-foot portfolio to Investcorp International.

Most recently in the third quarter, CenterPoint Properties sold a 21-property, 2.35-million-square-foot portfolio to Westmount Realty Capital. Venture One sold a 1-million-square-foot warehouse and distribution center at 23534 South Central Ave. in University Park to CBRE. Also in the I-80 Corridor, Central Grocers sold a 934,000-square-foot warehouse and distribution center at 2600 West Haven Road to Supervalue Inc.

With that in mind, West does acknowledge there will be challenges ahead. He cites labor and workforce challenges as something that the industry faces. And not just in industrial, but across all submarkets. While the city is pushing universities and programs to get ahead of the issue, it might not be enough. The mayor has touted the City Colleges of Chicago, broken ground on a food business incubator on the West Side and launched the DPI partnership, but only time will tell if those efforts will keep the workforce and businesses in Chicago or Illinois.

“Labor is definitely a challenge in some markets,” said West. “The government and different agencies are trying to stimulate growth with workforce training programs, but the biggest challenge is that Illinois as a state is not growing in population. We’re losing people to other states where the weather is better and the economic climate is better.”

Moving forward into the new year, West expects conditions to stay relatively solid but there are a few possible issues he’s keeping his eye on. In general, the Chicago industrial market has been a bit more sluggish than what the industry has experienced in the past couple years. So, what the market is going through now could be “a little bit of a hangover,” or perhaps a sign of some larger downturn on the horizon, West said.

“On a macro level, the economy is chugging along and needs to keep moving in the right direction. Any changes on Wall Street or in the tax structure could send a ripple effect through the industry. On a micro level, we’re watching the supply of new construction and making sure we don’t get out of balance,” West said.