Modern amenities make the difference when it comes to attracting industrial tenants

This industrial facility at 4100 Rock Creek Blvd. in Joliet is a successful part of First Industrial Realty Trust’s industrial portfolio.

This industrial facility at 4100 Rock Creek Blvd. in Joliet is a successful part of First Industrial Realty Trust’s industrial portfolio.

by Dan Rafter

What does it take to attract the most desirable tenants to an industrial property? Chicago Industrial Properties spoke to two local industrial experts, Adam Moore, regional director for the Chicago office of First Industrial Realty Trust, and Jim Clewlow, chief investment officer with Oak Brook, Illinois-based CenterPoint Properties about the strength of the industrial market and the amenities that tenants want in their warehouses and manufacturing facilities.

Adam Moore
Regional Director
First Industrial Realty Trust

Chicago Industrial Properties: When you are searching for industrial properties for your REIT, what amenities or features are you looking for?
Adam Moore: Everyone is a little different. But we are trying to put together a high-quality portfolio for the long-term. We are not just looking to meet the demands of the current day. Location is the old cliché, but that really is important. Clear heights is also something that we look at. Years and years ago, the standard was 18-foot clear heights. Some of the forward thinkers were looking for 24-foot clear heights. Now we are still looking at clear heights, only our standard, especially when you’re looking at a new building, is 36-foot clear height. That gives us plenty of room to run.

CIP: What other amenities make industrial properties attractive today?
Moore: We also look for ample trailer parking. This has become a bigger issue as people look to stage trailers for just-in-time delivery. Trailers have gotten longer, so industrial facilities need ample trailer courts. We also like the ability to add a lot of auto parking. E-commerce users are looking for heavy auto parking. We generally look at Class-A buildings that are energy efficient and modern precast. We look at the overall quality of the assets.

CIP: Are there enough of these industrial facilities available in the Chicago market?
Moore: Yes and no. There are a lot of these facilities in Chicago and the suburbs. The trick for us is finding them at a price where we can add value to our shareholders. We are always looking for where we can add value for our shareholders. We purchased a building, about three-and-a-half years ago at a very fair price for a vacant building. We are now leasing it quickly. It has generated nice traffic for us. This is an example where we added value to our portfolio for our shareholders. The facility is in Joliet at a great location near I-55. It has great clear heights and plenty of trailer parking. It has skylights and T5 lighting. For all intents and purposes, the building, which was built in 2006, has become a brand-new building.

We can also add value through development. We purchased a significant amount of farmland in Kenosha County in Wisconsin. We have a 600,000-square-foot spec building that we are about to complete on that site next month. We have seen good activity on leasing on that building.

CIP: How do you find the right properties that do allow you to add value to your shareholders?
Moore: We are always searching for ways to add value. You have to look at a lot of properties until you find the ones that give you the opportunity to add the value. There is a decent amount of activity in the market as far as Class-A industrial properties go. The trick is finding a building where we can add value.

CIP: How strong is the industrial market today in Chicago and its suburbs?
Moore: Industrial is very strong right now, especially in Chicago. This is the strongest industrial market I’ve seen during my 20-plus-year career. It is a very big market, and it is strong from both a leasing activity and rental rate growth perspective. It is also strong from a sales perspective.

CIP: What makes Chicago such a strong industrial market?
Moore: Chicago is the crossroads of the United States. The railroads go through here. The vast majority of truck traffic in the United States runs through Chicago in some shape or form. That, combined with our population center in the center of country, makes us attractive for industrial users. A very high percentage of people in the United States live within a one-day truck drive from Chicago. That combined with the slow and steady growth in the national economy has helped the industrial market in Chicago. My contemporaries have been measured as far as new development. There is not the over-development that we have seen in other market cycle. It has been slow and steady growth in this market.

 

Jim Clewlow
Chief Investment Officer
CenterPoint Properties

CIP: What are you looking for when it’s time to purchase an industrial property?
Jim Clewlow: We buy and hold for the long-term. We are now a national company. We used to be Chicago only. But now we are national. We focus on ports and intermodal markets, which includes Chicago. We are always looking for assets that are functionally designed. They can be older, as long as they are still functional. We are also, of course, looking for a good location in a port or intermodal market.

CIP: What makes the Chicago area such a good industrial market?
Clewlow: Chicago has a very diverse economy. We used to do a study, which is still true today. The Chicago economy is almost as diverse as the national economy. There are not a lot of real highs or a bunch of real lows in the Chicago market. It’s just a good, diverse economy that happens to be at the crossroads of the United States. The interstate system and the rail system are very strong here. All the major interstates connect here. All the major class-1 railroads intersect here, too. Those two forces, combined with O’Hare International Airport, makes this a great logistics market.

CIP: The industrial market, in Chicago and across the country, is performing well today. Why is that?
Clewlow: The historical performance of this asset class has been strong relative to other asset classes, namely office and retail. Industrial has historically outperformed those other asset classes. And it doesn’t have as much risk as those other asset classes. The risk-adjustment return of industrial is favorable compared to other asset classes. There are lower vacancies. Where there is downtime, the when space is vacant, it typically doesn’t take as long to fill it. It’s not glamorous like office and retail. It’s not shiny. But it is very steady. It is a slow and steady performer. It’s like the tortoise versus the hare.

CIP: What impact has e-commerce had on the industrial market?
Clewlow: E-commerce is driving a signification portion of industrial space demand now. E-commerce is making the market look very good, very attractive. If e-commerce continues to grow, it will help industrial quite a bit. Of course, e-commerce is one of the risks that people associate with the sector, as well. If people stop buying through e-commerce, it would have an impact on industrial demand. Right now, it doesn’t look like that is going to happen. The trends are only pointing up when it comes to e-commerce. My house is filled with Amazon products. The growth pattern is very high. E-commerce has essentially takes industrial demand to another level, and this has probably happened at the expense of the retail market. Instead of buying something at a shopping center, you might end up typing it into your computer. Then it goes to a warehouse.

Of course, there are companies that do both e-commerce and brick-and-mortar retail. It doesn’t have to be one or the other. But there is evidence that the industrial demand that occurs because of e-commerce is occurring at the expense of retail.

CIP: What kind of amenities make for the most attractive industrial buildings today?
Clewlow: The only way to answer that is to look at the new industrial buildings that are being built today. They come with a lot more docks, with more trailer parking. They have higher clear heights. The buildings are taller and you can stack higher in them. What are the attributes of new buildings today compared with the industrial buildings of 20 years ago? They are taller today. They have more docks. They have more parking. That trend isn’t changing. In five years or 10 years, it wouldn’t shock us to see that buildings are even taller and have even more docks than they have today.

CIP: Are you seeing more spec industrial buildings today?
Clewlow: That is relative. There is more spec construction. But it is still relatively constrained compared to 10 years ago. For the most part, the industrial supply is still constrained. In most cases, industrial supply is being built for demand as demand is needing it. Industrial has a shorter construction cycle than do other product types. The supply lags aren’t as big. So the industrial market is not as volatile.

CIP: Do you think the industrial market will remain strong as 2016 moves toward 2017?
Clewlow: I do. The U.S. economy is strong. The GDP is growing. Industrial production is up. As long as our economy is growing, even if it is growing at a rate that is slower than what it has been historically, industrial will be a good place to put your money. Strong U.S. economic vitals usually translate to strong industrial vitals.

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