NAI Hiffman’s Dan Leahy, executive vice president with the Industrial services group, is moderating today’s NAIOP Chicago All-Star Industrial Panel. Speakers include Carter Andrus of Prologis, Brian Kling of Colliers International, Brett Kroner of CBRE, Jeff Lanaghan of IDI, and Brian Roach of DCT Industrial.
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8:35 a.m. – Leahy: Let’s talk about 2012 – how it ended up and what 2013 looks like…
8:38 a.m. – Andrus: I’m optimistic. The recovery we’ve seen will continue through 2013. Digging into Chicago, we saw about 13 million SF absorbed in 2012, a little less than the 19 million SF absorbed during peak years, but it’s still promising. We’ve seen a lot of demand – showings, proposals, interest, and deals. The lion’s share of activity has been focused in O’Hare, Central DuPage and I-55, but we’ve also seen strong improvement in other submarkets and class “B” space. Another positive trend we’re going to see throughout the year is rent growth, and that’s good news for everyone.
8:42 a.m. – Lanaghan: Chicago’s been lagging a little bit in terms of development compared to the rest of the country. We’re looking to start some spec construction in Chicago soon, particularly in Bolingbrook.
8:43 a.m. – Kling: The trend of consolidation should continue due to the high cost of operations. Companies would rather spend the money to implement technology in a new location than pay operating costs at multiple locations.
8:46 a.m. – Leahy: The online retail industry continues to expand. Companies need to have the inventory levels on hand to support online sales. Inventory will continue to expand, which is good news for the industrial real estate market. The larger retailers such as Target or Amazon are trying to figure out their e-commerce strategy to deliver their products faster – in some cases providing same day delivery – and are trying to determine if they can use their existing supply chain infrastructure to do so.
8:48 a.m. – Kling: There is a tremendous cost for a company to provide same day delivery, but the internet retailers need to provide that service going forward, especially with the internet sales tax bill being debated in Congress right now.
8:50 a.m. – Leahy: Speaking of Amazon, they will soon be providing a grocery service, so expect to see Amazon move somewhere within the Chicago region in the future to provide that new service.
8:52 a.m. – Kroner: Looking at Lake County, the area has always been a difficult one to enter for companies. Little land remains for development, and spec construction isn’t happening just yet. HSA Commercial is planning a 200,000 SF spec building. Many of Lake County’s buildings are a bit older with lower ceilings and a high office component.
8:58 a.m. – Lanaghan: Manufacturing in Chicago is getting better, but I wouldn’t necessarily say it’s back. Rental premiums for air-conditioned warehouse and other amenities will eventually come back in these manufacturing buildings, but at least these buildings are leasing now.
9:00 a.m. – Kling: Increased labor costs and the expense of shipping goods from China has made it cost effective to manufacture in the U.S. again.
9:02 a.m. – Lanaghan: Manufacturing is coming back, but the plant that left with 300 jobs in 2008 has come back with only 30 jobs due to the automation that comes with that return.
9:04 a.m. – Kroner: The Niles market in particular got crushed by the downturn, then owners got realistic with rental rates and asking prices. You see older buildings in O’Hare getting repurposed by getting scraped and rebuilt, but I don’t see that trend taking hold in North Cook anytime soon.
9:08 a.m. – Andrus: The trend has been positive with building sales, despite a brief setback during the first quarter of 2013. We have also seen an increase in user sales lately as right now is a good opportunity for owner-operators.
9:20 a.m. – Kling: If a company is considering a long-term lease, they should look closely at buying. Doing a lease vs. sale analysis may prove that buying makes more sense right now. The I-55 Corridor has really tightened up, which is the reason we’re seeing so much planned spec development breaking ground.
9:12 a.m. – Leahy: Users and investors are having a hard time finding quality class “A” product. Are we now at the stage where class “B” product is being considered?
9:13 a.m. – Roach: We are now looking at quality class “B” product. The location is more important that the quality of the product right now. It makes sense to put money into renovating a building if it’s in the right location.
9:14 a.m. – Andrus: We will see the spread between class “A” and “B” buildings narrow, as demand is finally returning to the “B” buildings. We’ll start seeing rent growth in 2013 in some of the market’s more active submarkets, particularly I-55, O’Hare and Central DuPage.
9:16 a.m. – Roach: I-55 and I-294 into the city are some of the areas that we think would benefit from and could support new development.
9:19 a.m. – Kling: I agree that the I-55 and Central DuPage submarkets will continue to be strong. I’m also really bullish on the I-88 Corridor submarket. There is currently only one building over 300,000 SF available in that submarket.
9:21 a.m. – I want to thank our panel for participating and everyone for attending.