[IMGCAP(1)]

CHICAGO—Order something through Amazon in the morning, and you're likely to hear a knock on your Downtown apartment door by four that afternoon. As in many cities across the country, last-mile shipping is huge here, and that has been a major driver of the industrial market's success.

But, as Jeff Janda and Jim Planey, principals of Lee & Assoc. of Illinois explain, there are some old-school truths about the Chicago market that underpin its new-age upsurge. “We don't compete heavily with any city in the Midwest,” says Planey, who explains that the city will lose an occasional deal to St. Louis, Indianapolis or Columbus. “But what strengthens Chicago as a logistics center is Lake Michigan, and as a result, you have to drive through Chicago to go east or west. By default our geography—in addition to our rail system and highways, has made decades of difference for Chicago.”

Couple that with a market booming with major recent deals with a variety of so-called last-mile providers—such as Amazon, UPS, FedEx and 3PLs—and we get a fuller picture of the market's surging numbers. In fact, Janda pegs occupancy for the 1.3-billion-square-foot market at 93%, with rental rates that have reflected the surge, increasing from $3.99 net in 2011 to a current rate around $4.56. “We're seeing companies expanding inventories and taking additional space,” he says. “It's been a good ride for a long time.”

Three years ago, the principal explains, if a user wanted 100,000 square feet in nearby Bolingbrook, rent would have been “in the range of $3.25 a foot. Today it's probably closer to $4.15.” A lack of supply in the predominantly light-industrial market is helping to define rents and simultaneously justify the roughly 8.3 million square feet of spec and build-to-suit construction now under way.

With the post-recessionary surge, “We've seen a flight to better, more functional space,” says Janda. “Users are tired of 20-foot clear buildings in second-tier areas. They want 32-foot clear with 60-foot staging bays.” They're demanding more, he says, and increasingly, they're willing to pay.

“It's becoming a 24/7 market,” adds Planey, “especially because of the logistics companies. They can afford more functional buildings because they know they're going to get the returns out of it.”

Short-term deals, geared especially for times like now as we head into the holiday season, typify how well the market is doing. Local landlords, who a few years ago would jump at the chance for such small-potatoes deals as companies looking for temporary overflow space, are today more comfortably in the driver's seat on such negotiations.

Landlords are more reticent to bite, knowing they could hold out for—and probably get—a more profitable long-term deal. But while this is especially true of smaller, one-off landlords, larger ones are more likely to give in, first because they're more likely to have the space, and second, they consider it good business.

“A tenant will go to the institutional landlord and ask for 100,000 feet for 90 days,” says Planey. “A larger landlord will work with that tenant on the small space to keep him as a tenant in the larger space.” But, big owner or small, an active market makes the ultimate decision one of choice rather than necessity.

[IMGCAP(2)]

Another major trend defining the surging Chicago industrial market is infill redevelopment. In many cases, assets growing long in the tooth—some harkening back to the 1960s—are more valuable now for the real estate under them than the facility themselves, and in the race for new space, developers are reworking them for new tenants.

“A prime infill market is Northlake, just southeast of O'Hare Airport on I-294,” says Janda. “There are two significant redevelopments that are going on there. Dominick's, a Safeway company, had a 50-acre campus there since the 1970s with four large facilities on it. It was acquired by a developer, and while two were reutilized, the other two were torn down in favor of a new, 588,000-square-foot spec facility. It's state-of the-art and 36-foot clear.” Plus it carries the same bones that make so many Chicago industrial locations ideal: “It's surrounded by expressways, rooftops and good labor.”

He adds that there is another development, “down the street, a redevelopment of a former paper company. They're building a 200,000-square-foot facility that is set to go up in the near future. We're seeing more of that because people will pay to be in the right location.”

At the end of the day, there are many characteristics of the Chicago industrial market that contribute to its current success, a new generation of tenants and a proven geography being only two. These factors at a fortuitous time in our economy, are a winning recipe.

Jim Planey summarizes it best: “People will pay to be in the right location.”

Instant Insights /

Industrial Landlords Ride a Wave of Dot-coms

Related Stories

Recommended For You