Over the years, Chicagoland has become an attractive logistics hub, leading to a sharp increase in the number of distribution centers. What makes so alluring? Recently, Chicago-based Core Industrial Realty Founder Noel Liston addressed this question while discussing the impact of these factors on the development process.
First and foremost, Chicago’s geographical location is a linchpin in its appeal for this type of project. Positioned as a central access point, the city offers easy access to a significant portion of the U.S. (most states within a 24-hour drive or less), reducing transit times and costs and making it an optimal location for companies aiming to distribute goods efficiently across the nation.
Yet geographical advantage is only part of the equation. Chicago offers impressive infrastructure that supports the logistics industry and is home to intermodal prairies where the four major rail carriers converge, transforming the region into a critical hub for ferrying goods between various regions of the country and facilitating the flow of commerce on a grand scale.
The Big Three: Rail, Highway, and Labor
When developers consider setting up distribution centers around Chicagoland, Liston said they prioritize three key components: connectivity to rail networks, proximity to highways, and access to a robust labor force, with the latter being crucial for both the construction phase and the ongoing operation of a facility. The interconnectivity of highways is essential for efficient transportation of goods, while a skilled labor pool ensures the smooth operation of warehouses. Proximity to rail and intermodals, as well as O’Hare Airport, further enhances the region’s appeal, making it a multifaceted logistics powerhouse.
Embracing Innovation
When asked about construction technologies or practices that are being used to enhance efficiency, safety and sustainability, Liston noted that LED lighting and motion sensors have become staples in new distribution centers, significantly improving energy efficiency. Furthermore, advancements in concrete pours allow for higher stacking—and while these might come at a higher cost, they are essential for staying competitive.
Regulatory Considerations
While Chicagoland offers numerous advantages, as with any region, Liston said there are some regulatory challenges to navigate. For instance, there have been increased energy requirements for roofing and wall insulation, adding to construction costs.
Liston elaborates, “Zoning restrictions on trailer parking and twenty-four-hour operations can also vary from one municipality to another. In some prime locations, zoning constraints may pose resistance from residents.”
Not to mention, the scarcity of available land in these prime areas presents a unique challenge.
Another Challenge: The Economic Climate
As of June 2023, the industrial real estate market in Chicagoland is facing a major consideration—rising interest rates, which has ripple effects on developers, owners, and tenants alike. Amazon, for example, has slowed their once rapid pace of acquiring and/or building new facilities.
That said, Liston said the market is stable, likely due to our consumer-oriented economy. Supply and demand remain well balanced, with many major submarkets experiencing historic lows in vacancy rates. “Roughly two-thirds of economic activity is driven domestically,” he said, “constituting a significant sixty-six percent of our GDP. While quantifying these effects remains challenging, we’ve seen tangible benefits from the realignment of global supply chains. There’s a growing interest in domestic product security, reducing resilience on overseas sources for production and storage, undoubtably bolstering the market’s growth.”
Current Projects
As for current projects, Core Industrial Realty has many in the pipeline. The firm is currently the leasing agent for Panettone Development’s 356,000-square-foot distribution building in Aurora, Illinois, strategically located along the I-80 Corridor. The building was completed on July 1 and has already generated significant interest.
Moreover, Core is representing several manufacturing companies in their search for new space. Though the details are still confidential, Liston hinted at a substantial lease transaction in the pipeline, promising a noteworthy addition to the region’s industrial landscape.
In summary, Chicagoland’s rise as an attractive logistics hub can be attributed to its geography, robust infrastructure, and access to labor and transportation networks. While challenges do exist, embracing innovation and navigating economic fluctuations are essential to staying competitive in the market.