Industrial remains one of the most resilient sectors in commercial real estate. But how are builders keeping up with users’ evolving needs—and satiating them in a cost-effective way?
Chicago’s industrial real estate market has experienced various ups and downs over the years, but it remains one of the most robust and enduring sectors in the commercial real estate landscape. Chicago Industrial Properties recent had the opportunity to speak with Principle Construction Chief Operating Officer Mark Augustyn, as well as Krusinski Construction Director of Operations Dominic Valvano, to discuss the current state of the market and how builders are adapting to meet their users’ evolving needs.
To start, Augustyn emphasized the ongoing demand for 50,000- to 150,000-square-foot manufacturing facilities, primarily for owner-occupiers. There has also been a demand for truck maintenance repair office warehouse facilities with ample tractor-trailer parking, albeit with some location challenges due to the density of trailer truck parking.
Valvano added to that, saying that in the in the past year, there has also been a shift toward more build-to-suit projects as opposed to speculative warehouses. Build-to-suit tenants, especially those in heavy freight industries like airline cargo, are becoming increasingly prevalent.
Yet despite its resiliency, the economic climate has had its share of impacts on the construction market. While the speculative market in O’Hare remains vibrant, Augustyn observed that in other areas, developers are taking a cautious approach. “Now that the construction season is somewhat escaping us, many of these projects are on pause until there’s more certainty about interest rates and cap rates,” he explained.
Valvano agreed that spec warehouse projects in Chicagoland have slowed down as developers wait to see how the market evolves. Contrarily, other regions, such as Dallas-Fort Worth, have experienced positive growth in speculative warehouse construction.
This brings us to the fundamental question: how are these companies finding the equilibrium between providing value to their users and effectively handling expenses?
For Principle, Augustyn emphasized a client-centric approach. “We present them with their choices, along with the associated costs and long-term risks, allowing them to determine the value,” he explained.
Valvano shared a similar sentiment, ultimately highlighting the prioritization of long-term relationships: “That line can be hard to find, as we will always sacrifice additional operational cost to ensure that a project is successful, and more importantly, that the client is provided with an exceptional end product and service. The long-term relationship far outweighs any additional cost that we would incur.”
While it’s true that the concept of “value” can value from project to project, there’s a growing consensus in the business regarding sustainability. While going green may come with higher cost, it’s becoming increasingly evident that many end users consider it an essential element in project design, in alignment with their expectations for long-term success.
Companies such as Principle and Krusinski are not only witnessing a growing interest in elements like rooftop solar panels and clerestory windows but are also placing greater emphasis on enhancing efficiency throughout their construction operations.
In fact, Krusinski recently completed two LEED Silver BTS projects where sustainability and carbon accounting were critical design considerations. Valvano said it is now being discussed much earlier in the design phase, even as early as project interviews, which can be a determining factor in project award.
Certainly, the construction of any kind relies heavily on a substantial labor force. Fortunately, despite recent setbacks, the situation seems to have stabilized. Manpower and transportation issues no longer pose a significant threat to critical tasks, but companies are remaining vigilant by conducting weekly foreman and Owner-Architect-Contractor (OAC) meetings to preemptively address any potential problems and implement proactive adjustments to prevent disruptions.
In terms of key factors in planning and executing projects currently, Augustyn and Valvano maintained that lead times have subsided compared to the past few years, though there remain a few elements that will affect a project schedule if not addressed soon enough.
“Ensuring everyone is on the same page is crucial,” Valvano said. “Finalizing the design, conducting a thorough review, and releasing trades kickstart the clock, which is critical for project success. Ongoing updates and communication enable everyone to stay on course and work together toward the same goals.”
As for their current projects, Augustyn and Valvano provided insights into their recent projects across various submarkets in Chicagoland.
To name a few, Principle currently has two projects underway in O’Hare; a new warehouse for a built-to-suit client in Aurora, Illinois; a speculative warehouse in Wheeling, Illinois; and the company just delivered a truck storage warehouse project in Alsip, Illinois.
Krusinski recently completed four build-to-suit warehouse and office projects in Bensenville, Illinois, each fully occupied; two speculative warehouses, with a third under construction, in Bolingbrook, Illinois; a warehouse renovation in Joliet; and a large project for a food and beverage distributor at the ChicagoWest Business Center in DeKalb, Illinois.