CRE Midwest

Small-, medium-sized industrial users becoming more active as rents rise and concessions fall

The Chicago industrial market is seeing more activity from small- and mid-sized users of space, as the market also is beginning to favor landlords with increasing rents and fewer concessions. Those were just a few of the views expressed by the State of the Market panel last Thursday during the 11th Annual CIP Summit at the Crowne Plaza Hotel in Rosemont.

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The Chicago industrial market is seeing more activity from small- and mid-sized users of space, as the market also is beginning to favor landlords with increasing rents and fewer concessions. Those were just a few of the views expressed by the State of the Market panel last Thursday during the 11th Annual CIP Summit at the Crowne Plaza Hotel in Rosemont.

Carter Andrus of Prologis moderated the panel, which featured Matthew Stauber, Colliers International; Robin Stollberg, JLL; Tom Boyle, Transwestern; Adam Roth, NAI Hiffman; and Jason West, Cushman & Wakefield.

Active users in the Chicago industrial market range from manufacturing and food packaging, processing and distribution to e-commerce and 3PLs, according to West. “The demand has been coming from a lot of different sectors,” he said.

Stolberg added that the market is seeing a tremendous amount of confidence from small- and medium-sized users.

The 50,000- to 150,000-square-foot user seems to becoming more into play, according to Roth. He pointed out that there were four deals in the I-55 Corridor over the last two months in that size range.

Boyle agreed the market is exhibiting more of an equilibrium.

“The bread-and-butter for the Chicago market is really that 40,000- to 90,000-square-foot user and that tenant or buyer was sort of quiet relative to the larger deals that garner more of the press. I’m happy to see that there is a little bit more balance in the market,” Boyle said.

The panel also debated whether states such as Wisconsin and Indiana are luring business away from Chicago.

Roth argued that Chicago has the infrastructure in place to compete with Wisconsin and Indiana. He added that transportation is such a large expenditure for corporations that on a distribution and manufacturing level, Chicago will continue to have a robust industrial base.

“We’re going to lose business to Wisconsin and Indiana because we’re so big, but we have logistical infrastructure that cannot be replicated,” Roth said.

Roth also said real estate is a very small percentage of a company’s supply chain, adding that transportation is now 10 times the cost of real estate and in a year, it will be 15 to 18 times the cost of rent.

“You’ve got to be on top of your consumers and on top of your suppliers,” he said. “You’re going to be in Chicago. We have access to population and labor.”

The consensus of the panel was that the market is now tending to favor landlords.

West said there are multiple deals competing for space, rental rates have increased and concessions are going down.

“If you’re in the market for a particular size, you used to have what seemed like an endless list of options and it’s just not that way anymore,” West said. “It is a rude awakening for the tenants.”

Stauber said tenants today have to be prepared to make quick decisions due to the lack of available Class A space.

As a result of the lack of space, speculative development is taking place in select areas of the Chicago metro area, such as the I-55 Corridor, according to West.

“The lack of product that everyone is experiencing on the tenant rep side is driving the demand,” he said. “There is a scarcity of land sites in the I-55 Corridor, so people are being forced to I-80 for larger build-to-suits.”

Right now, there are too many dollars chasing Class A product, West said, and there is now a market for functional, well-located Class B product.

Roth said he would not be afraid of Cook County, adding that he would invest in particular rail carrier-served buildings.

In addition, user demand is up on the purchase side, according to Stauber, who noted that sale prices are rising.

“That trend is going to continue as alternatives start to evaporate,” he said.