Hugh Williams, principal with the Rosemont, Illinois, office of Avison Young doesn’t know if his industrial client will choose to locate in Chicago or Nashville. He has an even bigger industrial client that is considering leaving its Chicago-area location and moving to Maryland.
And this isn’t unusual. The Chicago market faces competition for industrial users not just from its traditional border rivals of Indiana and Wisconsin, but, increasingly, from across the country.
These other markets entice users with the promise of lower taxes, state governments that are friendlier to industrial users and less expensive labor.
This doesn’t mean that the Chicago area is helpless in the face of increased competition The region still has plenty to attract industrial users, most notably a great location; a strong infrastructure of highways and rail lines; and a deep, highly skilled workforce.
“Every significant indusrial users is going to leverage the states of Indiana and Wisconsin against us,” Williams said. “But the fact is, if you’re an industrial user, you still need people to work in your facility. The quality of worker is different in the city of Chicago than it is in other parts of the country.”
Williams has a good perspective on the competition for industrial users. Consider his client that is looking at either Chicago or Nashville. The client favors the less-congested traffic conditions of Nashville and the nicer climate. Williams’ client that is considering Maryland is looking at that state because of its lower transportation costs.
Another client currently based in Illinois is considering a move to Texas. And it’s not only because it might be cheaper for this client to operate in the Lone Star state. The client isn’t a huge one, employing maybe 15. But the smallish manufacturer is worried about retaining these 15 workers; Its employees so often move on to new jobs, leaving it to scramble to find replacements. The client is looking to Texas as an opportunity to break this pattern, Williams said.
“The client thinks it will have a better opportunity to keep its employees if it makes the move to Texas,” Williams said.
The vacancy rate in the Illinois industrial market remains tight. But there are submarkets where industrial vacancy rates are rising. And Williams said that many of the users who would occupy these spaces are looking at other areas of the country to open their warehouses and distribution centers.
“Chicago is always going to be strong just because it is the hub of the Midwest,” Williams said. “But the coasts are dominant today.”
A good example of Illinois losing out on a big industrial user came in late 2017, when Taiwanese electronics company Foxconn selected Mount Pleasant, Wisconsin, for its new manufacturing plant, one that will create crystal displays. The new plant will be located on 1,200 acres.
Williams said that Foxconn officials wanted to be located near Chicago. But they didn’t want to be in Illinois. The Mount Pleasant location, then, was a good alternative.
“The industrial market here is great in some respects,” Williams said. “The investment market, the institutional buyers, that end of the market is particularly great. A lot of these groups have to get money out the door. We are seeing big consolidation strategies playing itself out in Chicago and around the country. So developers are feeling confident that they’ll be able to sell it to the investment community.”
At the same time, Williams said, submarkets such as the I-80 and I-55 corridors are seeing higher industrial vacancy rates. The I-90 corridor has double-digit vacancy rates today, Williams said.
“You see little signs that in some submarkets the user activity isn’t as strong as it ought to be,” Williams said. “But the investment community is still out there paying good money, and that end of the market remains really strong.”