David Harker has been working in commercial real estate for more than 30 years. So when Harker, executive vice president for the central region of Chicago-based First Industrial Realty Trust, says that the industrial market today is as strong as he’s ever seen it, that means something.
Midwest Real Estate News recently spoke to Harker about the industrial market throughout the Midwest and what’s behind its incredible performance.
Here’s some of what this veteran real estate pro had to say:
The industrial market has been one of the strongest commercial sectors for a long time. What’s behind this?David Harker: This is a great time to be in industrial real estate. It’s the best market I’ve ever seen, and I’ve been doing this for 32 years. The general economy has been doing very well, and the industrial market is a good reflection of the general economy.
Tenants’ needs are changing, too. They need bigger, higher buildings, so they are moving out of older buildings and moving into newer ones.
And there is ecommerce, of course. Ecommerce is a big tailwind on the industrial market. It continues to have a positive impact on this sector.
What impact is Amazon and other ecommerce companies having on the industrial sector today?
Harker: They are everywhere, and they are taking down more space than any other users in the country. They are showing no signs of slowing down. The number that people throw out there all the time, is that an e-tailer like amazon takes two to three times as much industrial space as does a typical bricks-and-mortar retailer. So these ecommerce users need a lot more warehouse space. They don’t have storage. They need to ship their products direct from the warehouse. As they are promising people one-day delivery, and in some cases two-hour delivery, they need more warehouses closer to where people live.
We’ve written a lot about last-mile delivery. How big of a role is the quest to locate distribution centers closer to big cities playing in today’s industrial market?
Harker: What you are seeing is companies putting their big-box warehouses as close as they can get them to the cities. They’re still not close enough, though. So they are taking smaller buildings and using them as another way to deliver their products and have their products closer to the population centers. They might have a million-square-foot building on the outskirts of town and another 300,000-square-footer as close to downtown as they can get.
It has been a big change. That space is hard to find. It’s hard to find the land, and hard to find land that you can get zoned for industrial. It’s not easy finding that land that has good access and all the things you are looking for. That last-mile land is a tough animal to find.
What amenities are users looking for when it comes to modern industrial space today?Harker: Users want more car parking than ever. This is especially true of the Amazons of the world, the e-fulfillment users. They have 10 times if not 20 times as many employees as an old warehouse that is just sending products out by the truckload. They need more car parking, more trailer parking.
And the buildings keep getting bigger and higher, too. Just 10 years ago, 32-foot-high ceilings were the standard. Now they are building spaces with 40-foot-high ceilings.
How severe is the shortage in modern industrial space in some markets?Harker: The real shortage is in the last-mile type of facilities. Modern space that is close to the urban cores is very difficult to find. Demand exceeds supply in that section of the market. People are making more effort to build that stuff. But it is hard to do. It takes some time. Eventually it will even out. Right now, though, it is hard to find that modern last-mile distribution center.
What are some of the strongest industrial markets in the Midwest today?Harker: It’s pretty wide-spread right now. Every market is doing OK. Chicago is obviously an important part of the Midwest market. That is the market we concentrate on the most. But all the other cities in the Midwest are doing fine, too. Minneapolis, St. Louis, Indianapolis, Louisville, they are all doing fine.
Are there any big industrial projects your company is working on about which you are especially excited?Harker: First Park 94 in Kenosha, Wisconsin, is the largest industrial project we are now working on. It is a 300-acre park just over the Wisconsin state line from Illinois. It serves the Chicago market, and is just east of where Amazon has its 1.5 million square feet of buildings. We’ve built two buildings already. We can build a total of 4.5 million square feet there. We’ve already built 1.2 million. So far, demand has been very good. We leased the first building immediately upon completion. The second was half-leased when it was completed. We are just looking for a tenant to fill in the second half.