CHICAGO—Saddle Creek Logistics Services' decision earlier this year to lease a new 1,114,575 square-foot build-to-suit distribution facility at CenterPoint Intermodal Center in Joliet was the largest industrial transaction and build-to-suit in the Midwest region of the US, but it also illustrates several important changes that have occurred in the distribution space and will govern it for the foreseeable future.

“It really speaks to the state of the market for 3PLs and how much they're growing,” Brian McKiernan, senior vice president, development of CenterPoint, tells GlobeSt.com. Saddle Creek, he points out, will relocate to CIC from a 590,000 square-foot facility in nearby Elwood, IL, nearly doubling their space. It plans to move by February, 2016.

3PLs specialize in warehousing, transportation, packaging and fulfillment services for clients, and throughout the nation, many are expanding. Their clients need more space, especially in dense urban cores like Chicago, Dallas and New Jersey, in order to satisfy consumer demand for same-day delivery of an increasing variety of products. Saddle Creek, for example, now has at least 41 locations nationwide and the firm has completed other recent expansions. Earlier this year, for example, it agreed to occupy a new 673,137 square-foot building at Gateway Commerce Center in the Metro East submarket of St. Louis.

The demand for new facilities has escalated so much, and so many retailers have made big, strategic real estate decisions, that CenterPoint now has about 2.4 million square feet under construction in Joliet alone, McKiernan says. And it's not just 3PLs. The companies readying to move into the intermodal center are a mixed group including 3PLs, end users and retailers including some in the food and beverage business.

However, even with this level of construction, “there is definitely more demand than supply.” McKiernan expects this state of affairs to last for some time because developers and lenders don't want repeat the experience of 2008, when many ended up overbuilding just as the economy cratered. “I think people came out of the last recession with more caution.”  

But increased demand is not the only factor changing the distribution market. According to McKiernan, same-day delivery means users are handling a vastly greater number of small packages than they did just a few years ago, and therefore, to increase functionality and efficiency, they now have far more specific requirements for new class A facilities. With 132 dock doors, 373 car parking stalls, both expandable, 328 trailer stalls and 4 drive-in doors, for example, Saddle Creek's new home will increase its ability to move products out to the I-55/I-80 interchange or the Union Pacific's Joliet Intermodal Terminal.

“We're also starting to see a lot of changes in clear heights,” he adds, as the increasing volume of product means distributors need to stack packages higher. Although the new Saddle Creek facility will have 32' clear heights many users are starting to look for buildings with 36' clear heights.

McKiernan says that “with the limited amount of new supply,” we're still very much in a landlord's market. But he also believes that companies focused on logistics want to work with developers that can increase their efficiency and generate savings, and are less concerned about which party has the advantage in the landlord/tenant relationship. Today, “functionality matters more than anything else.”