Crossing the border: Illinois industrial users making the move to Southeastern Wisconsin

 

kenosha industrial

by Dan Rafter

The numbers tell the story: In the last four years, the Kenosha and Racine submarkets of Southeastern Wisconsin — right over the Illinois/Wisconsin border — have seen 17 industrial deals of 100,000 square feet or more. Of those 17 deals, six involved companies that made the move from the northern Illinois county of Lake County to Southeastern Wisconsin.

And industrial users heading in the other direction? Ryan Bain, first vice president of corporate advisory services with the Bannockburn, Illinois, office of CBRE, says that there might have been one large industrial user that made the reverse trip, moving from Southeastern Wisconsin into Lake County, Illinois, during the last four years, but no more.

“It rarely, if ever, happens the other way,” Bain said. “The Southeastern Wisconsin industrial market has been very strong for the last four years or so, and it’s just getting stronger.”

Don’t expect this to change any time soon. Industrial users will continue to move across the border from Illinois to Wisconsin in search of cheaper land, tax incentives and lower rents.

The Wisconsin pull

Bain pointed to two main reasons for the Illinois-to-Wisconsin migration: First, there remains a lack of available bulk industrial product in Lake County, Illinois. Users seeking modern space, though, see plenty of bulk space available just across the border in Wisconsin in the Racine and Kenosha markets.

At the same time, it costs less for industrial users to set up shop in Southeastern Wisconsin. Land is less expensive here than in Northern Illinois. Industrial users can also take advantage of generous incentives to locate their facilities in Southeastern Wisconsin. Rental rates are less expensive, too.

“Over the last four years or five years, 35 percent to 40 percent of the demand for industrial space in Southeastern Wisconsin has been coming from Illinois,” Bain said.

Bain doesn’t see this basic formula changing any time soon. Demand for industrial space in Southeastern Wisconsin continues to rise. It’s why developers are building spec industrial buildings here at increasing rates. It’s why, too, these spec buildings fill up quickly.

Bain said that the last four spec industrial developments in Southeastern Wisconsin have landed tenants before construction crews even finished building them.

CBRE reported that in the second quarter of 2015, the vacancy rate for the Kenosha industrial market was an impressively low 2.2 percent. In the Racine market, that number stood at a still-low 4 percent.

The Kenosha market has been especially impressive, and continues to see new industrial construction. Zilber Property Group is building 173,165 square feet of speculative industrial space here. Uline also began construction on a second warehouse adjacent to the company’s Pleasant Prairie facility.

“There is a lot of capital in the market right now,” Bain said. “Industrial use is a safe asset class in the commercial world, along with multifamily. There is a lot of high-level institutional capital that is focused on industrial, which is helping to boost that market. The economy in general is helping, too. There was not a lot of spec development from 2007 to almost 2011. The market had time to recover. It had time to absorb space, so the market is not overbuilt right now. All of that is helping to boost the industrial market in general.”

Trent Poole, first vice president with the Milwaukee office of CBRE, said that the entire Southeastern Wisconsin market — including Milwaukee — has a location advantage that is helping to fuel the industrial sector, too. The market here has access to major highways that make it easy to reach from across the country.

Southeastern Wisconsin is fortunate, too, to boast several pad-ready sites already slated for development. In Kenosha alone, there are 800 acres of industrial land that are ready for development, Poole said.

Poole pointed, too, to the strong economic development groups operating in the Kenosha and Racine markets.

“They are very pro-active in supporting and initiating development,” he said. “You put that on top of what the state is doing to attract business here, and you have an area that is very attractive to industrial users. We also have a strong economy in the state. We don’t have the economic issues that some of our neighbors do.”

Poole said that the spec development that is now taking place in Southeastern Wisconsin has been extremely successful. CenterPoint recently completed a pair of spec industrial developments in Pleasant Prairie, Wisconsin. The 520,000-square-foot and 411,000-square-foot buildings both nabbed tenants that took all of this square footage, Poole said, meaning that more than 900,000 square feet of spec industrial space was already filled before it even was built.

“In the coming years, we are going to see more spec building,” Poole said. “We are certainly in an upmarket that shows no signs of weakening. As long as we continue to see absorption, the momentum will continue. As long as developments are successful, we’ll see more coming on the heels of them. I think we are going to see this strong market continue.”

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