8 Things You Should Know About Chicago Industrial
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Is Chicago's industrial market in the fifth inning or the bottom of the eighth? The speakers at our 5th Annual Industrial Summit on Friday didn't agree on that point, but they all concurred on market fundamentals: they're the strongest they've been in a decade. Here are eight key takeaways.
1) The Risk of Overbuilding's Low
Absorption has been strong in greater Chicago, and new development doesn't seem likely to overshoot demand, our speakers pointed out. Other major markets—IE, North New Jersey, South Dallas—seem to be more at risk of overbuilding should the economy soften, since they've seen a lot more development since the end of the recession. About 250 real estate pros came to the event at the Hyatt Regency O'Hare on Friday.
2) Private Developers Are Busy
An influx of capital and access to cheap money has spurred industrial development (infill and further out) by private developers in Chicago, according to our speakers. Public companies have been a bit more cautious, often preferring to pursue growth through major portfolio deals and by driving rents. Snapped: First Industrial CIO Jojo Yap, Prologis SVP Carter Andrus and CBRE first VP Ryan Bain.
3) Even So, Development is a Bit Slow
VentureOne principal Mark Goode and Brennan Investment Group chairman Michael Brennan. Another reason development has lagged in Chicago has simply been a lack of developable land, the speakers said. The closer-in markets are mature, and while they offer infill opportunities, that's a slower process than building on a patch of land near an Interstate exit. Even so, the demand for space in closer locations—even the city—will drive development here in the long run.
4) Goose Island's Becoming a Tech Hub
One of the more interesting recent industrial stories in the city is Goose Island's nascent transformation from a heavy industry node to a tech-focused hub. Amazon recently inked a lease for a warehouse there, which will be used to deliver packages within Chicago even faster. High-speed distribution of that kind is going to be a prime driver in the local industrial market in the coming year. Snapped: Cushman & Wakefield senior director Sean Henrick and CenterPoint Properties chief development officer Michael Murphy.
5) Manufacturing is Back, and It Wants Space
No one would have expected it 10 years ago, but re-shoring is very much a real thing, and manufacturers are demanding high-quality new space. Chicago will be able to provide some of that, especially in redeveloped older factories in infill locations. Snapped: Duke Realty regional EVP Steve Schnur.
6) Some Obsolete Buildings Really Aren't
Some functionally obsolete buildings might not be so obsolete, the speakers noted. Companies pay more for newer and higher-tech buildings, but older buildings sometimes attract users who don't need all the new bells and whistles. Case in point: marijuana growers have taken virtually all the "functionally obsolete" industrial space in the Denver market in the last two years. Snapped: JLL SVP Steve Trapp and NGKF executive managing director, national industrial practice Geoffrey Kasselman.
7) It's Hard to Find Big Blocks
Liston & Tsantilis partner Brian Liston, who moderated, and Mark Goode. Space is tight in a lot of suburban markets, said our speakers. For instance, along I-55 and I-88, it's hard to find large blocks of space for growing companies. Companies that want big blocks right away often go Joliet or DeKalb or Wilmington. Or if they can wait a little longer, and really want to be closer in, older sites can be knocked down and redeveloped in inner markets, such as near O'Hare.
8) The Bigger Panama Canal is Good for Chicago
Finally, the enlargement of the Panama Canal is generally going to be a positive for the Chicago market, since it will probably increase the number of international containers moving into the Midwest. The scope of the project is immense: more dirt has been moved this time than when the canal was originally dug, and more concrete has been poured. Post Panamax ships will carry more than twice as many containers as current ships. Snapped: Liston & Tsantilis' Peter Tsantilis and Missner Group president Barry Missner.