E-commerce inspiring industrial leaders to take over space in urban areas

heine-column-logisticenter-avison-youngBy Todd Heine
Principal, Avison Young

E-commerce continues to fuel many aspects of Chicago’s industrial market, which is seeing considerable activity heading into the second quarter of 2017. While e-commerce is often viewed from the perspective of Amazon.com and its proliferation of warehouse and distribution space, there is much more to the e-commerce picture.

Chicago is one of the top industrial markets in the country because, in part, of its central location and access to local, regional and national distribution routes, intermodals and airports. This has helped thousands of companies, from home products manufacturers and food distributors to auto parts suppliers, tap into new and growing markets. Many of those companies participate in e-commerce on some level—even if it’s not close to the magnitude of Amazon.com—and are contributing to the strong pace of industrial activity in the market.

Todd Heine

Todd Heine

These industrial businesses have varying needs for space, which is fueling activity across all submarkets. The I-55 and I-80 corridors continue to see large warehouse users looking for lower rental rates and access to strong transportation connections. In those markets, more and more users are looking for large blocks of space to help them compete with Amazon.com and other larger warehouse and distribution companies.

Others are looking at infill locations where they can be positioned to serve Chicago’s urban marketplace. There are few blocks of space larger than 200,000 square feet in many submarkets around the city, which is prompting the redevelopment and repurposing of older industrial sites.

Those redeveloped sites — in Hodgkins and other city markets — are being leased to many service-oriented companies that supply creative companies, restaurants, and hotels with everything from billboards and tradeshow booths to restaurant linens. In these locations, higher rental rates are offset by savings in transportation costs associated with delivering from a close-in location versus driving to and from Bolingbrook or other outlying areas.

Some e-commerce users are also shifting toward urban infill locations because of a need to access the large consumer populations. Companies looking to deliver goods in the next-day or same-day business models are focusing on smaller sites in the O’Hare market or in Goose Island.

There also are emerging infill markets such as the Pullman District on Chicago’s Southside, which is drawing food services companies, last mile distribution companies and data centers.

Another common thread throughout most newer industrial buildings is the increasing use of technology. From industrial robots to automated shelving and racking, and inventory tracking systems, companies are turning to technology to improve their manufacturing and production. This shift toward high-tech operations is also creating a need for more skilled labor to monitor and operate the technology. Baking and food processing, along with cold storage businesses, for example, are very labor intensive. While some jobs have been lost to automation over the past decade, many businesses have seen the need for an alternative workforce with specific engineering or computer-related skills to run the machines.

This focus on technology is also causing some industrial businesses to reevaluate their location based on labor pool needs. The concept of moving farther out from the city to achieve lower rents is not as viable for all businesses today. Companies that run heavily on technology and automation are finding that moving closer to the urban core allows them to tap into highly skilled employees with technology expertise.

Chicago’s industrial activity has been strong for several years and there appears to be no significant slowdown in sight.  The combination of traditional corporate distribution space and the rapidly expanding e-commerce and third party logistics segments should keep the industry moving for years to come.

Todd Heine is principal with the Rosemont, Illinois, office of Avison Young.

This entry was posted in Chicago Commercial Real Estate, Illinois, Illinois real estate, industrial real estate and tagged , , , , , . Bookmark the permalink.

One Response to E-commerce inspiring industrial leaders to take over space in urban areas

  1. Reblogged this on By the Mighty Mumford and commented:

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