Industrial N Illinois

Forecasting the 2019 industrial sector

Forecasting the 2019 industrial sector,ph1

Meteorologists have a thankless job, predicting the weather a few days out and then suffering vitriol when uncalled-for rain spoils what should have been a sunny day. Prognosticating something just as complex, the real estate market and greater economy, is just as tough, let alone looking a year or more ahead.

But that didn’t stop us from asking Geoffrey M. Kasselman SIOR, LEED AP, executive managing director at Newmark Knight Frank, for his thoughts on where the industrial sector is headed over the next 12 months. According to him, the asset class will continue its strong streak, though there is treacherous footing out there for those who aren’t paying attention to the path ahead.

For more industry insight going into 2019, be sure to register for REjournals’ 17th annual Commercial Real Estate Forecast, the must-attend event for CRE professionals.

Will the industrial sector continue to be strong, or might we expect to see a plateau in 2019?

I anticipate an increase of mixed signals in 2019, the net sum of which remains to be seen. Some indicators will remain positive with continued momentum and metrics, while others will be increasingly negative on either a localized or macro basis. That said, while industrial sector dynamics suggest it still has some promising run time, it is unlikely that this sector will be materially stronger in 2019 than it is now.

If economic growth slows over the next few years as projected, e-commerce (and thus, industrial real estate) might take a hit. Is this a concern for you or are we still years away from those effects?

After living through several full market cycles, I’ve learned to always maintain a heightened level of awareness and concern! With regard to the near-term prospects for e-commerce and industrial real estate, the drivers are different and more promising than other asset classes, so while no asset class is immune from global or domestic economic market swings, I am of the opinion that industrial will continue to be the ROI darling, in a relative sense, versus other assets classes, over the next few years at least.

Will I-55 and I-80 still be the hot submarkets in the Chicago area for industrial development next year? Are there any emerging submarkets? For transaction activity, which areas will see the most velocity?

Let’s face it, I-55 and I-80 have some issues and challenges to overcome. While this location is favorable for regional and national distribution, the outsized influx of firms to this area over the past 20 years or so have left this submarket and its investors and developers in a precarious position with low barriers to entry, little product differentiation, increasing infrastructure needs and traffic congestion and, perhaps most significantly, not enough workers. Consequently, this is one of the few “tenant submarkets” in the area and will continue to be for the next several quarters.

Other areas to watch include: Elgin/I-90 which is starting to feel overheated in terms of supply and demand; Southern Wisconsin and Lake County (IL) where the impact of super-employers like Foxconn, Amazon and Uline are still being sorted out and the City of Chicago where last-mile dynamics continue to develop. The O’Hare market is somewhat insular and is expected to chug along just fine as a result.

How important is future-proofing when it comes to industrial product?

The entire world is systematically being revised or reinvented through the forces of digitization and PropTech, and in just 10 years—before the end of that next lease that gets signed—the ways in which users use their properties will have been completely reimagined and significantly different than current best practices. So the question on the table for all stakeholders (including communities, investors, developers, users and yes, even brokers) is: Have you future-proofed your property and/or business model to thrive in the next 10 years and beyond?

Once again, registration is now open for the 17th annual Commercial Real Estate Forecast. Last year’s event drew more than 900 attendees to hear the latest insight on industrial, office, retail and multifamily investment and development.