Industrial forecast: Some overbuilding won’t block the path ahead in 2019

January 14, 2019 | Matt Baker

Credit: RE Journals

Industrial forecast: Some overbuilding won’t block the path ahead in 2019,ph1
Pictured from left to right: Dan Fogarty of Becknell Industrial, Justin Fierz of Midwest Industrial Funds, Gary Rose of Clear Height Properties (obscured) and Daniel Benassi, SIOR of Entre Commercial Realty. Not pictured: Ivan Baker of North Central Illinois Economic Development Corp.

The size of the crowds at last week’s Chicago Commercial Real Estate conference illustrate the fact that the CRE industry and this market are on great footing going into the new year. One sector in particular, industrial, drew a great amount of interest as the breakout session had a packed house.

Ivan Baker, president and CEO of the North Central Illinois Economic Development Corp. moderated the panel. Joining him in the discussion were Dan Benassi, SIOR, co-founder of Entre Commercial; Dan Fogarty, senior vice president, development at Becknell Industrial; Justin Fierz, principal, Midwest Industrial Funds and Gary Rose, managing director at Clear Height Properties.

The overall Chicago market should roll on in 2019 as it did last year, according to Fierz, though certain submarkets may see a pause.

“We eat sleep and breathe the Chicagoland industrial market,” Fierz said. “Right now, big bulk in the Joliet area is overbuilt. There is more supply than demand. It’s a similar situation in I-55 with a lot of options in the 300,000-square-foot range.”

Rose agreed that 2019 should be a good year for the sector, albeit with some pockets of overbuilding. But Chicago retains a lot of potential and is still the hub of the Midwest. He offered an anecdote to illustrate his bullishness on Chicago’s industrial market.

“At year’s end we sold a property that we closed in July, a covered land play,” Rose said. “Immediately after closing, we were approached by a developer. This property is in the O’Hare area, so we’re still seeing interest coming in and there is a lot of capital backing those folks.”

Every new spec industrial project that goes up today pushes the limits on clear height, bay spacing and dock doors. But the amenity that matters most to tenants isn’t inside the building.

“Users are demanding truck parking,” said Benassi, who was recently installed as Chicago chapter president of SIOR. “The number of calls we get on daily basis is ridiculous. From a building perspective, you hear about clear height, but even if they take 36 feet, they aren’t using it all. They always need more parking.”

The importance of industrial to Chicago’s real estate over this cycle—and the importance of Chicago to the nation’s logistics infrastructure, for that matter—cannot be overstated.

“Chicago was recently named the most competitive market for manufacturing and logistics in the nation, and one of top three in the world,” Baker said, before asking, “how do markets around country compare and how can we be more competitive?”

According to Fogarty, the size of the Chicago metro will keep users and investors interested in the region. He did mention a familiar hurdle: the tax and political climate in Illinois. However, he doesn’t feel the situation is dire enough to send too much demand to nearby secondary markets.

“Due to the fact that you have 10 million people in the MSA and every investor in the world is here, there is never going to be a liquidity problem,” Fogarty said. There is an issue with state government and our bond rating. I don’t know what can be done aside from a healthy political climate. If you want to be close to those 10 million people and the intermodals, northwest Indiana and southeast Wisconsin won’t do.”

In Chicago there is always a push and a pull. The pull that keeps people here is the need for last mile facilities in the country’s third-largest market. What had blighted areas in the suburbs a decade ago are now among the tightest areas. The push, of course, is the political chaos at the city, county and state levels.

“There’s no question when you get closer to border, one or two out of hundred tenants will actually pick up and move out of state,” Fierz said. “The bottom line is there are millions of people here and they have to be here. But we also have e-commerce, and there’s still a vibe and energy and positivity around Chicago, along with manufacturing, which locates here because of labor.”

Overall, the panel agreed that the size of the market, the access to consumers and to labor and the region’s importance for e-commerce, manufacturing and logistics will continue to overcome any handicaps that state and local politics create for commercial real estate and the economy in general.