Market activity continues to be on the upswing in Northwest Indiana as Illinois companies looking for cost saving solutions continue to be attracted by the economic advantages and leasing incentives being offered by area landlords.
An industrial market review by NAI Hiffman notes that the previous decade was an active construction period in the Northwest Indiana submarket, as more than 3 million square feet was added to the total industrial inventory, an increase of about 9 percent. While little construction activity has taken place since 2009, Scott Duerkop, vice president in the Industrial Services Group at Jones Lang LaSalle, predicts an increase in activity this year.
“I would say that activity is improving,” he said. “We’re seeing good prospect activity in the 30,000- to 100,000-square-foot range. There are some companies that are looking to expand, perhaps with new construction.”
Duerkop pointed out that developer Indiana Land Becknell Investors LLC soon will break ground on a 150,000-square-foot industrial building in Hobart.
Mike Micka, vice president of development for Holladay Properties, also is optimistic that market activity is improving in Northwest Indiana.
“Over the last six months, the calls have started to come in a little bit more,” he said. “We probably have had inquiries for about a total of 250,000 square feet this year. Not all of those deals have been done. A lot of them are still in the process, but it makes me feel pretty good that activity is coming back up.”
For its part, Holladay Properties is planning to build a 50,000-square-foot spec building at its AmeriPlex at the Port, which is a 385-acre mixed-use business park in Portage, Micka said.
“I know that’s small compared to some of the other things in the Chicago market, but we’re trying to target that 15,000- to 20,000-square-foot user into this new product,” he said.
Micka added that demand for spec buildings is on the rise in the Northwest Indiana submarket.
“During 2011, I actually lost 75,000 square feet of users because I didn’t have the space in the park to meet their needs immediately,” he said. “So our thought is we need to have the product ready to go now so we don’t lose anymore. “
Vacancy and absorption
Another source for optimism is that the Northwest Indiana vacancy rate has been on the decline since the beginning of 2010, and has reached historically low levels over the past few quarters, according to the NAI Hiffman report. The vacancy rate was unchanged over the course of the first quarter of 2012, remaining at 7.7 percent. A year ago, this rate was nearly a full percentage point higher at 8.6 percent. At its peak in 2009, the rate was 4.4 percent higher at 12.1 percent. A significant amount of vacant space has been absorbed through new leases and user sales over the past two years. Net absorption totaled negative 24,296 square feet for the quarter.
“The absorption in Lake and Porter counties was huge,” Micka said. “About 220,000 square feet came off the market last year. In 2012, absorption probably won’t be as high because there is not as much product.”
Duerkop, however, added that he believes absorption will continue to improve.
“I think we’re seeing enough activity that the supply of space will absorb, which will bring the vacancy rate down,” he said. “We’re seeing what I would call brisk activity. I’m an optimist and I think that a good deal of the space will absorb by the end of the year.”
The NAI Hiffman report pointed out that one notable sale transaction of the first quarter was a user sale. Contractors Steel Co., which has three locations in Michigan and one in Ohio, purchased the 528,699-square-foot building located at 1435 165th St. in Hammond. The building was purchased for $4.9 million from Ohio-based ClarkDietrich Building Systems. The low sale price reflects the deferred maintenance in the building, which included multiple holes in the ground and issues with the roof, according to the report.
NAI Hiffman also noted that the largest new lease of the quarter involved Chicago-based Cook County Lumber Co. leasing 27,000 square feet in the 313,453-square-foot warehouse building located at 141 E. 141st St. just east of the Illinois-Indiana border in Hammond.
Indiana has historically held significant economic advantages over Illinois, such as lower property taxes, utility costs, labor rates, and soft costs (workman’s compensation and unemployment insurance), according to NAI Hiffman. Most companies new to Northwest Indiana migrate from South Cook/Will Counties, but existing Northwest Indiana firms rarely move across the state line to Illinois.
Duerkop said out-of-state companies are particularly attracted to 10-year tax abatements and certain employee tax credits.
“We continue to see a large number of firms operating in the city of Chicago that are attracted by the lower expenses in Northwest Indiana,” he said. “We’re seeing a lot of those same users that appreciate the relatively short distance from Chicago to Northwest Indiana. I think the incentives that Indiana is offering, particularly to firms that are relocating from out-of-state, are really attracting people to Northwest Indiana.”
Micka added that the state’s new Right to Work laws draw many companies to Northwest Indiana, in addition to the overall tax advantages.
“We are getting a lot of inquiries from businesses in Illinois looking to be in Indiana,” he said. “That’s why we positioned ourselves where we did in Lake and Porter counties near the interstates to be able to really service that market.”