According to Jim Martell, Chairman and CEO of Ridge Property Trust (RPT), there is an unprecedented amount of one-million plus square foot buildings being built to accommodate the consolidation of the sub- regional distribution model of smaller buildings.
“It’s a trend that we have seen over the last seven or eight years,” Martell said. “Some of that’s being driven by e-commerce as well. So the Amazon’s, Walmart’s, and so forth, are taking down a million, or more, of square foot buildings in regions where they can do their e-commerce business.”
Another trend Martell speaks to is the continued growth and demand for rail service, which is generating more demand for regional intermodal centers. Thus, from a regional distribution perspective, companies want to be as close as they can to these intermodals to take advantage of the lower cost of overall freight from door to door. “It started in the late 1990’s and early 2000’s, where the intermodal concept really started taking off,” he said.
“Joliet and Ellwood are big intermodals. We have our big intermodal in Wilmington, which is right next to Ellwood.” Martell noted its continued growth is due to the logistics cost continuing to rise, so people are looking for ways to minimize that and move products cheaper. “The railroads have been able to fill that void. Of course gas and diesel continue to rise, and the hours that truckers can drive are shrinking. So that puts more cost onto the trucking side of logistics.”
Chicago’s industrial market has had a strong couple years of absorption, and Martell said they haven’t seen rates run up yet too much either.
“Absorption’s been steady. It was hard to see some big users for a while bypassing Chicago like Amazon, and Walmart who went to Indianapolis. But we were able to capture Michelin in our park in Wilmington.”
“Several of the larger users over the last couple of years have not landed in Chicago,” Martell continued. “We’ve been getting a little concerned that people might be bypassing Chicago for a more friendlier, financially stable confine.”
If you draw the circle big enough, Chicago for regional distribution by itself—according to Martell—has probably 50 million people within the region that are reachable by truck.
“Chicago’s a force to be reckoned with just because of the population base,” he said. “But Illinois has to continue to lower its worker’s compensation. It’s got to keep its income and real estate taxes low, and continue to build infrastructure. The Illiana expressway is a good example of infrastructure that will greatly enhance the logistics model for Chicago.”
So what are industrial tenants looking for in their space? Martell noted some of the obvious characteristics are location, and whether they’re going to be next to a transportation hub, or next to key transportation linkages.
“We’re seeing the clear heights of the buildings getting up to 40 feet. We’re getting ready to break ground on a 1.1 million square foot spec building in Wilmington that will have a 40 foot clear building. The protection systems are very important as well, as they obviously protect the building.”
Tenants are also looking for a lot of truck storage because the movement of trucks in, and around, the building cannot be constrained Martell said. “That costs money, so you have to have a lot of maneuvering area for truck/trailer parking, which is very important.”
“Then there’s also the cueing of the trucks coming in and going out,” he added. “You have to be able to build cueing lanes into the property so the trucks are off the streets, and are not blocking the throughput of other buildings.”