Industrial Market Hits 11% Vacancy

CHICAGO-At the seventh annual RealShare Chicago, panelists on the Forecasting Leasing, Investment and Development in the Industrial Market confirmed this sector is seeing troubled times that will likely only further deteriorate. The vacancy rate in the area is 11%; and the mantra of the hour is blend and extend.

Panelist Steven Schnur, SVP of Chicago operations for Duke Realty Corp., said his firm is less concerned about the lease rate than capital preservation. They have renewed leases set to mature in 2009 to 2015.

“Tenants don’t want to move. They don’t want to disrupt their operations,” said Jim Deter, executive managing director for CB Richard Ellis. As a result they are looking for ways to stay in their current location or condense operations into fewer facilities.

Now, every decision is about cost savings. The large one million-square-foot distribution centers will no longer be as popular since companies are looking to cut down extensively on rising transportation costs by locating closer to the buyers, according to panel moderator Leonard Caldeira, managing director industrial services Jones Lang LaSalle.

Don Schoenheider, VP and city manager for Liberty Property Trust, agreed but said he doesn’t see companies trading the million-square-foot centers into four 250,000-square-foot facilities. Instead the million-square-foot center will be 700,000 square-feet.

Caldeira offered a chart that charted the fiscal concerns companies take into account when making an industrial property decision. Rental rates accounted for only 4% of the decision, with transportation, inventory and labor expenses accounting for the huge majority. Dieter said he sees companies working hard to control their inventory better, which means the need for less space, further increasing the vacancy rate.

The one silver lining in the whole arena is the food industry. “The food people are growing because we aren’t going out. We’re eating at home more,” Lynn Reich, EVP for Colliers B&K, said.