CHICAGO—The US industrial market may have slowed down a bit from the truly historic levels of new construction and absorption seen over the past few years, but demand remains quite strong, especially in a group of markets important to product distribution. And with the continuing rise of e-commerce, more companies will need ultra-modern distribution buildings in these key metro areas.
That is the conclusion of Bob Smietana, chief executive officer of HSA Commercial Real Estate, who in a just-released video provides a look ahead to the US industrial market’s prospects in 2018. The Chicago-based developer has been one of the most active in the Midwest region, and in 2017 it quickly found tenants for a collection of sparkling new distribution centers.
“The second-generation buildings aren’t getting as much play from tenants nowadays,” he says. E-commerce, and the need to quickly ship out thousands of individual items to customers’ homes each day, rather than bulk shipments to retail outlets, means the newest and most advanced structures are needed.
Twenty years ago, he explains, buildings with 24’ clear heights were considered tall. But lately, developers have been constructing many facilities with 32’ clear heights, and ones of 36’ and even 40’ have become common in some areas. Furthermore, “technology has now taken over.” Instead of higher forklifts and higher racking systems, distributors now want two levels inside their walls, “with robots running around doing the picking and packing.”
HSA Commercial has seen this need first-hand. The company recently completed about $100 million of new product, with a total of around 1.5 million square feet, in Nashville, Indianapolis, Southeast WI and Chicago. And even though developers in these metro areas have a lot of product underway, “the building is just keeping up with the necessary absorption,” says Smietana.
Nashville, for example, is “one of the most vibrant cities in America right now.” The firm recently completed the 652,000-square-foot Commerce Farms V at Commerce Farms Business Center in suburban Lebanon. “In the next few weeks, it will be 100% leased, a year after we completed the project.”
Other regions have also proven receptive to speculative projects.
Southeast WI, due to its location adjacent to Chicago and its dense transportation networks, has risen as a new distribution market, and developers have staked out positions on its vast supply of available land. HSA started out with a couple hundred acres about ten years ago, Smietana says, “and it’s only going to get better now with 13,000 employees from Foxconn.”
And as for Chicago itself, “it’s still a dominant place for distribution facilities, and we don’t see that changing any time in the future.”
“Industrial development at HSA in 2017 has been as busy as I can remember,” he concludes, “and we expect more of the same in 2018.”