by Dan Rafter
Low vacancies, plenty of new construction and rising demand. These are the big trends in the Southeast Wisconsin industrial market today. Chicago Industrial Properties spoke with three key brokers working this market today about what is fueling the strong industrial market just across the Illinois/Wisconsin border.
Here is what Sam Badger and Whit Heitman, industrial specialists with Chicago’s NAI Hiffman, had to say about the Southeast Wisconsin industrial market.
Chicago Industrial Properties: Are you seeing more industrial activity – sales, leases and construction – today in the Southeast Wisconsin market than you were, say, one or two years ago?
Sam Badger: We are certainly seeing more activity in terms of construction and an increase in the supply of product. Right now there are extremely low vacancy rates in industrial in Southeast Wisconsin. We represent CenterPoint Properties in LakeView Business Park in Pleasant Prairie, Wisconsin. Using that as an example, in the park today there is a 100,000-square-foot vacancy. That is it right now. As it pertains to construction activity, CenterPoint is putting up a 200,000-square-foot spec building in the park. First Industrial Realty Trust just to the north closed on 300 acres of land and plans to have a 600,000-square-foot spec building ready for occupancy in the second quarter of next year.
CIP: What are some of the reasons for the demand in this market?
Whit Heitman: There are a couple of big reasons. First, there is a lack of available land in Northern Illinois and Lake County, Illinois. That lack of available land in Illinois that is well-positioned along the expressways is one factor. In addition to that, there is the fact that property taxes are lower in Wisconsin versus Northern Illinois. You are close to a dollar-a-square-foot difference. It is simply cheaper in Wisconsin. The availability of land that is well-located across the expressway system helps make Wisconsin attractive. And you have a healthy state that is offering incentives on a case-by-case basis.
CIP: We’ve seen several industrial users moving from Northern Illinois to Wisconsin. But we aren’t seeing many companies going the other way. Is that an accurate assessment?
Badger: The cost to be in Wisconsin is less, and so we’re not seeing a lot of companies coming from Wisconsin into Illinois. There is no doubt in our minds that there are some companies that need to be in Illinois from a location standpoint. Those companies continue to expand or at least reside in Northern Illinois.
Heitman: There is hope in Illinois, though. Gov. Rauner is working on trying to improve the business climate in the state.
CIP: What are some of the reasons behind the spec construction we are seeing in industrial in Southeast Wisconsin?
Heitman: There are a lot of newsworthy items that are attracting companies to the area. The Amazon distribution space up there is drawing companies. Uline has relocated its corporate headquarters to Pleasant Prairie. There are many reasons why we are seeing new spec projects in this region.
Badger: There has been some good absorption in the industrial market in the last few years that has eaten up much of the vacancies. There are not that many choices of existing quality industrial projects for tenants. If you needed 300,000 square feet of industrial properties in Southeast Wisconsin and you wanted a relatively modern new product, you have two choices.
Heitman: The LakeView Corporate Park in Pleasant Prairie is the most established industrial park in Southeast Wisconsin. There is 12 million square feet of space in it. The vacancy rate there is under 4 percent. It’s close to 3 percent in that park.
CIP: When tenants are looking for modern industrial space in Southeast Wisconsin, what amenities do they want?
Badger: They want at least 32-foot ceilings. They are going to need a dock for every 10,000 square feet. They are going to need trailer parking. They want the efficiencies that come with a modern building from a utility standpoint.
CIP: Why is the industrial market performing so well in general these days?
Badger: There was definitely some pent-up demand coming out of the last recession. A lot of people had stayed put with what they were doing. They have grown internally as much as they possibly could. That led to a natural grassroots expansion.
Heitman: Companies today are striving to be more efficient. There are a lot of consolidations, a lot of companies getting under one roof. They need to locate in more efficient, modern space if they want to do this.
Badger: the Amazon factor, too, is important. The online immediate or next-day delivery option has become so important to consumers. You can’t service the entire country from one centrally located facility. You have to be in multiple facilities across the country. That has definitely pushed the industrial market today.