Capital Liquidity, Product Demand Driving The Golden Age Of Industrial
With record absorption and occupancy rates across all building classes and insatiable investor demand, Chicago's industrial real estate sector is in the strongest cycle in our lifetimes.
That's what the expert panelists at Bisnow's 6th Annual Industrial Summit told 275 guests at the Hyatt Regency O'Hare Hotel yesterday. And the bull market will continue into the foreseeable future, although a couple of our panelists sounded warnings about possible obstacles, not including our unorthodox in-the-round setting for the event.
Brennan Investment Group chairman Michael Brennan (left, with First Midwest Bank VP Rob Treleven and Brennan Investment executive director Brad O'Halloran) calls the market the "Golden Age of Industrial." He says he's never seen a landscape where the demand for acquiring Class-B assets is as strong as core in major markets. Investors are also checking down to emerging secondary markets like Louisville, Indianapolis and Seattle for Class-A opportunities. Closer to home, Michael says northwest Indiana's industrial submarket could be a sleeper with investors, as buildings there are long-owned by landlords with an eye toward the activity to the west, and its proximity to the downtown core make it desirable with tenants who could be priced out of Chicago's marquee submarkets.
Podolsky|Circle CORFAC International managing principal Alissa Adler (snapped with Podolsky|Circle principal John Homsher) says she's never seen such demand for smaller industrial assets and is happy it's keeping her busy. Alissa says her customers are looking for 40k to 50k SF buildings with high clear heights where they can move in immediately. Alissa says these middle market assets have been Podolsky|Circle's bread and butter in recent years.
Clarius Partners managing principal Kevin Matzke (left, with fellow panelist Bridge Development Partners principal Steve Groetsema) is amazed at the discipline shown in this cycle, but feels it's driven more by emotion than data. Kevin says developers, investors and brokers remember the freewheeling days of the pre-recession era market and are willing to be more conservative now. Example: Kevin told a story of a 2012 deal Clarius did where it left money on the table out of fear of an interest rate hike.
NGKF executive managing director Geoff Kasselman says the Chicago market will likely break a record with 26 straight quarters of positive net absorption. But he believes we're nearing the end of the boom period due to factors such as capital constraints and a lack of supply. Geoff also played futurist at the panel and believes the growing influence from e-commerce will soon have tenants demanding drone pads and docking for autonomous vehicles in their buildings.
Ridge Development Co president Jim Martell says that with more institutional capital entering the marketplace and regulations forcing banks to have more discipline in their lending, the development community doesn't have to leverage its assets as heavily as in the past. Jim also says 1M SF of spec buildings is unprecedented but the continued concerns of costs and inventory prevail over tenant decisions. One major concern Jim has with the future marketplace: infrastructure. He says the demand for product is driving tenants further away from the downtown core, eating away at their transportation costs, and that our highway system can't handle the growing demands put upon it.