Local leaders of top industrial developers haven’t had much of a break in recent months as interest in Chicago-area industrial real estate continues to reach new heights. And it’s not all pandemic-related upticks in e-commerce — though, that’s certainly a big part of the story. Despite the disruption the pandemic caused in 2020, this year is already shaping up to be a busy one for builders, brokers and industrial tenants.
But where are the big industrial developers building? What are some of the challenges they’re facing right now? And how does Chicago stack up in a national portfolio of assets?
One thing that’s for certain is that Chicago’s reputation and role as a major transportation hub isn’t changing anytime soon. If anything, the region’s importance will continue to increase as retail continues to evolve and e-commerce expands, says Brian McKiernan, SVP at CenterPoint Properties, whose Joliet Intermodal Center claims the title as largest inland port in North America.
“We’re long term; we don’t think Chicago is going away,” says McKiernan. “When you look at the rail connectivity and highway connectivity, Chicago is good reach for the Midwest. A lot of what comes into our intermodals in Joliet are redistributed out to Indiana, Iowa, Minnesota, Missouri and Kansas.”
Susan Bergdoll, SVP of leasing and development at Duke Realty, also sees value and growth in the Chicago market and says that her company continues to remain bullish on the region. And of course, the metro’s location remains one of its biggest assets when it comes to industrial development and distribution.
“The biggest thing that Illinois and Chicago have going for it is geography, and that’s not going to change, thankfully,” Bergdoll says of the region. “A truck driver can drive 11 hours and get within 50% of the US population in one day, and that’s not going to change.”
Despite the frequent news of population decline, government corruption, and challenges with entitlements, the Chicago area has a lot going for it. Berdoll cites the recent deal in Joliet by Canadian electric school bus maker Lion Electric as a vote of confidence in the area. And there’s something to be said about the players who are already here and those who know how to play ball in Illinois.
“I recognize that there are challenges in Illinois and there has been the perception that it’s difficult to do business [in Chicago], but people are still coming here,” Bergdoll says of the theme. “And there are plenty of municipalities within the Chicago area that are still pleasant to do business with, that get it, who are pro-development and want to see business come to them.”
In May, Duke Realty announced that it had completed over 829,000 square feet in various lease deals for the Chicago area between January 1 and April 30. And the company is expecting to do even more in the coming months.
“I want to grow. That’s what we’re trying to do in Chicago, is continue to grow the portfolio and our intent is to grow that through development,” Bergdoll says.
CenterPoint is also looking to invest in the region, but the company is also innovating in a new way by putting up big dollars for infrastructure improvements. At the national level, CenterPoint is prepared to invest over $1 billion this year alone.
The company, which is partnering with United Bridge Partners and the City of Joliet, is constructing a new 1.5-mile, four-lane extension which will link I-80 and CenterPoint’s Intermodal Center. Dubbed the Houbolt Road Extension, the new span of highway, which will include a 0.4-mile bridge, is expected to cut down on transport time while also helping keep commercial and passenger vehicle traffic separate.
And with much discussion of a national-level infrastructure plan, it’s clear that the country’s highways and commercial corridors could certainly use some improvements. But is it a chicken-or-the-egg scenario where we have to see more private development before new infrastructure investment, or is it the other way around?
“I think we have to invest in infrastructure ahead of private development in terms of warehouse space and business [site selection],” McKiernan says of the situation. “I think that’s been something that the US has done for a while and we’re now entering a new phase where we can utilize private capital to [improve infrastructure].”
Beyond Joliet, McKiernan says that he sees the O’Hare submarket and Chicago city infill market as other compelling — and competitive — areas for new development. Bergdoll also sees O’Hare as a coveted market for doing business in the region since there’s only so much room to grow but so much demand for the submarket.
Finally, when looking ahead at what’s next, both McKiernan and Bergdoll expect industrial demand to continue at a steady pace.
While e-commerce has been a big story in the last year, there’s also been some discussion or speculation of whether the Amazon fire will eventually flame out. It’s not likely, McKiernan believes, since the investment into e-commerce is representative of a larger evolution of retail instead of a quick shot in the arm.
“This is sort of a seminal moment, not just a bull market, I think this is more of a transformational change in the way that people shop and how people receive goods,” says McKiernan. “And I think that industrial is the net beneficiary of that change.”
And as developers continue to compete for new deals in the coming months, it’s going to be all hands on deck, Bergdoll suggests.
“There are a lot of aggressive players here and we have to roll up our sleeves and get aggressive to win deals,” she says. “We’re sitting today with a portfolio that’s 98% full, so I’m looking for new opportunities for development for the balance of 2021 and going into 2022.”
This story also appears in the May 2021 issue of Chicago Industrial Properties.