Industrial N Illinois

What are the expectations for Chicago’s industrial sector?

What are the expectations for Chicago’s industrial sector?,ph1
Rockwell Logistics Center in Chicago
What are the expectations for Chicago’s industrial sector?,ph2
Paragon Business Park in Romeoville

2017 was a good year for industrial, with positive absorption, steady rent growth and controlled development. And though there were a lot of big spaces recently added or coming to the market, this year looks to be headed in the same direction.

“Most of the development that’s going on in the industrial market is done by some of the primary or bigger developers that play in multiple markets across the country. And they’re really smart about it,” said Mike Yungerman, vice president, general manager at Opus Development Company. “You’ll continue to see a good development sector heading forward into 2018.”

Commercial real estate is affected by the greater economy, and every property type—whether it’s retail, industrial, office or multifamily—suffers in a down economy. But with the markets performing well, the successes that the industrial sector saw last year should continue.

“What we’re seeing is that all market indicators are still very strong,” said Matt Goode, principal at Venture One Real Estate. “Comparing what’s being built, what was absorbed last year and what we see in our pipeline, for both construction and also new leasing, we see that all the fundamentals are still really strong.”

Two factors should allow industrial to outperform the other property types. There has been a slow but steady increase in onshoring, with more manufacturing jobs returning to the U.S. The other factor is the continued impact of e-commerce on industrial, as the American consumer drives up the need for warehouses and fulfillment centers.

Eye on the markets

The bulk of the product that is coming online is in two areas, the I-55 and I-80 corridors, with more than half of all new development in 2017 going up in those two submarkets. This is primarily due to the availability of land in that region, compared to other areas.

But they are two distinct submarkets. “People tend to throw them in the same conversation because of their proximity,” said Yungerman. “I-55 is certainly turning into more of an infill market.”

While the I-55 corridor is fast joining O’Hare as a main source of industrial infill opportunities, there are options throughout the metro area. Central DuPage, in particular, is seeing good performance because of its access to highways and labor.

There has even been a slight reversal of the decades-long trend for industrial leaving the city center for the suburbs and exurbs. Venture One is building Rockwell Logistics Center, a 174,000-square-foot spec industrial building in the Little Village/Pilsen area of Chicago.

Designed to be a last mile urban logistics facility, the property’s location at 2445 S. Rockwell puts it less than a mile and a half from I-55 and within five miles of the Loop. The modern facility will offer functionality not often seen so close to the CBD with features like 32-foot clear height and 185-foot loading courts able to accommodate excess trailer and/or car parking.

“With the need for quicker deliveries and with a focus on labor, we’re seeing that the tenants are looking for space closer in,” Goode said.

Evolving client needs

One feature that more and more clients are asking for over the last few years is adaptable parking that can provide for employee parking or extra trailers, depending on need. “As a developer, we always look to make sure that when we do spec especially, that we have the ultimate flexibility,” Yungerman said, “so that we have the ability to expand car parking, expand trailer parking, expand the docs and those sorts of things as necessary to accommodate the multiple mixes of tenants that we’ll see.”

Opus has two recent spec projects in the southwest portion of the Chicago metro that emphasize this need for more parking options. The final phase of the Paragon Business Park in Romeoville was completed last August, and features three buildings on a 22-acre site. The buildings range from 111,000 and 134,000 square feet and feature industry standards like 30-foot clear heights and ESFR sprinkler systems. But the site has ample car and trailer parking, with one of the structures having 88 car spots alone.

The Rock Creek Logistics Center, slated for an August 2018 completion, will also provide abundant car parking, along with 367 trailer parking stalls. The 1.2-million-square-foot building in Joliet is a joint venture between Opus and AEW Capital Management.

Another continuing trend in modern industrial buildings is rising ceiling heights, but now they are going up for different reasons. Goode points to a million-square-foot spec space that Venture One is constructing in the I-80 corridor with 40-foot clear ceilings.

“While we think that could be designed to accommodate some of the more modern racking systems, another reason we are building to 40-foot clear is for the potential of an e-commerce tenant that might want to add a mezzanine to that building,” he said. “That’s another requirement for higher clear height that is different from what we’ve seen in the past. You would never have accounted for the need for a potential mezzanine in the past for a warehouse.”

This bumped height spec space is targeting a small percentage of the market. But for those that fit that niche, there aren’t many other options out there. “You can’t go back and add that, increase the clear height,” Goode said.

For infill locations, modernized small bay spaces are in demand. Think Class B and C buildings offering spaces of between 2,000 and 10,000 square feet. These types of locations are attractive to smaller tenants that would have historically been in retail spaces, but whose business relies more and more on fulfilling e-commerce orders.

“People don’t need perfect specs for that kind of thing because frankly you just can’t build it today,” said Goode. “We’re seeing a demand for these functional, smaller industrial units.”

Even as the Chicago market continues to evolve, greater economic pressures will keep providing lift to the industrial sector, which should remain strong into 2018.