by Declan Harty
The growth of the industrial market – in Chicago and across the country — isn’t expected to slow at all in 2017.
Thanks largely to a continued surge in e-commerce activity, the boom in industrial property has cued industrial professionals to gear up for what could be a year filled with new problems, trends and a constant need for more supply. From e-commerce’s boom to a new presidential administration, the industrial real estate market is gearing up for changes that could make ripples for years to come.
The Chicago industrial market alone saw record net absorption of 26.6 million square feet in 2016, according to a fourth quarter market report from Colliers International. The report detailed that the Second City saw its industrial vacancy rate drop 62 basis points in 2016, falling to 6.7 percent, the lowest vacancy rate since the third quarter of 2001.
With 85 construction projects completed in 2016 and another 58 currently under construction, the Chicago industrial market is primed for ample growth amid a flurry of interest in the area.
The rise of e-commerce
Some of the biggest leasing deals done in 2016 had one thing in common: e-commerce.
As Americans continue to demand speedy deliveries, e-retailers – notably Amazon – are snatching up more warehouse space and distribution facilities, all in a push to keep up.
Massive warehouse facilities have started to, or will soon, pop up in Cook County and Chicago’s edges in towns like Aurora, Joliet, Waukegan and Carol Stream. The push, primarily to the city’s southern and western cusps, has brought thousands of jobs to the area, as facilities require a skilled job force looking for employment.
But in the city, two-day shipping – the standard for services like Amazon Prime — is no longer satisfactory for many Chicagoans. Instead, they’re demanding same-day delivery, wanting their packages to arrive just hours after clicking “buy.”
“We’re all very spoiled and very impatient,” said Bob Smietana, chief executive officer of HSA Commercial, a Chicago-based real estate firm that focuses on various property types, including industrial.
The push for same-day deliveries means that developers are being called increasingly to build smaller, urban-based properties with ample available access for delivery vans, Smietana said. The move toward what’s been dubbed “last-mile deliveries” causes a need for spaces of about 50,000 to 60,000 square feet with available docking areas, van access, parking garages and high ceilings.
The biggest benefit for doing business in Chicago and much of the Midwest’s biggest markets, of course, is the central location in the middle of the country. While some Internet giants and delivery companies have created storage lockers where customers can pick up their own packages, most people who order online still prefer their delivery come straight to their home.
“The e-commerce last mile has just been booming,” said Justin Lerner, a principal with Transwestern.
Developers are attempting to compensate by expanding their efforts both in the city and its outskirts. Amazon, which signed half of the 10 largest new leases in 2016 (totaling 4 million square feet), leased properties in Romeoville, Waukegan and Aurora, among others. But the year prior, Amazon had already started to plant its “last-mile delivery” roots, leasing a property on Goose Island and in the Heart of Chicago neighborhood.
“They’re gobbling up the smaller spaces as well,” said Michael Marconi, a managing broker with Transwestern’s Rosemont industrial practice. “From your big e-commerce to your small e-commerce, every one of them wants to have these smaller distribution centers on the last mile.”
The push for industrial properties hasn’t only been caused by e-commerce. Industry experts have seen manufacturing companies and jobs make a push back to the Chicago area.
Over the last eight or so years, Elk Grove Village, led by Mayor Craig Johnson, has made a continued push for growth in its business park – even amid the Great Recession – resulting in what is the largest industrial park in the United States with more than 3,600 businesses across 62 million square feet.
Johnson attributes the business park’s successes to the village’s investment in the park, which has totaled more than $60 million in recent years.
“We became very aggressive,” he said. “We’ve been very proactive with working with the businesses to make sure we’re ahead of the curve.”
Located just west of O’Hare International Airport – a sea of industrial properties – Elk Grove Village and its business park were erected around the same time in the late ‘50s, early ‘60s. The village and park were always intended to work off one another, with the village as a home for the park’s employees.
Now, with a population of 33,127, Elk Grove has grown into a home for companies of all sorts. Johnson said the companies at the business park range from warehousing and distribution, but he’s hoping for continued development in the park’s manufacturing fronts.
“We hope we can bring manufacturing back,” said Johnson, who noted that Elk Grove is only No. 2 in manufacturing to Chicago across the state of Illinois. “We’re seeing a resurgence again that we haven’t seen in 30 years.”
But the spike in renewed interests in industrial properties like manufacturing, coupled with the booming demand from e-commerce, has caused many questions for those in the Chicago industrial market about what lies ahead.
“As developers, it’s almost tough to keep up with keep up with demand because of the amount of space these companies need,” said Smietana, who called the e-commerce trend “a different animal.” “We’re seeing a lot of growth.”