In his more than 20 years in the industry, Thomas Boyle, principal at Newmark Knight Frank Epic, has completed transactions in all of Chicago’s 23 submarkets. Boyle particularly has a unique perspective on the Lake County, Ill., and Southeast Wisconsin markets, which he recently shared with Illinois Real Estate Journal.
Illinois Real Estate Journal: How has market activity been in Southeast Wisconsin and Lake County?
Thomas Boyle: In Lake County, there is virtually no more developable land and that is really becoming a big issue in the marketplace. Redevelopments and teardowns are now becoming in vogue. Lake County also is the home to a lot of auto suppliers. The auto market has been booming for the last three or four years. They’ve had record years, in fact, ever since the bailouts. What’s surprising to me is that I have not seen very many auto suppliers in the market. In Lake County you’ve also got a couple of good arteries, but the transportation in Lake County is really challenging coupled with the lack of land. If companies need to expand, where can they go? Are they going to go south to Cook County? No. Are they going to go west to McHenry County? No. The primary release valve for all of the activity in Lake County is north, up into Kenosha County and Racine County in Wisconsin. What’s also interesting is that in 2009 and 2010, the only things you were seeing were blend and extends and very small deals. I thought that was going to lead to a very SBA-rich environment with people utilizing SBA financing to buy smaller buildings. I thought it was going to be a bottom-up recovery. Then toward the end of 2010 and early 2011, the majority of the deals that we saw in the market were over 300,000 square feet. I think the pendulum swung and corporate America realized that they had to make moves, and so they moved forth into very strategic, larger properties.
IREJ: What are you foreseeing in terms of vacancy in both Lake County and Southeast Wisconsin?
Boyle: When you talk about Lake County and Southeast Wisconsin, you have to recognize that out of the 100 million square feet of inventory, probably less than 10 percent of that is institutional grade. So if I have a client looking for 80,000 square feet, there are only a couple of places in Lake County and Kenosha County where they can look. The true number that people should be discussing in this phase of the cycle is the Class A vacancy rate, and I estimate the Class A vacancy rate in Lake County and Southeast Wisconsin to be at 4.9 percent. That’s going to have the biggest impact in 2013 and 2014 because in Lake County you’ve got a finite supply of land. There are only a couple of big bulk sites left that are available for industrial development. And then, everyone thinks that when you go north of the state line, there’s land everywhere. But in Kenosha County and Racine County, steps are going to need to be taken to extend utilities to make more land accessible for industrial development.
IREJ: What can be done about the lack of available supply?
Boyle: It takes outreach and local knowledge. There are sites out there that can be developed and it takes an astute eye to recognize which opportunities are viable.
IREJ: Is any of the remaining space in Lake County and Southeast Wisconsin going to be absorbed?
Boyle: A lot of the Class C industrial has been absorbed already. In 2012, we saw people retrofitting and rehabilitating the Class C properties or they were beginning to tear them down. That’s what’s been occurring. The next phase will involve people working hard to create more Class A property.
IREJ: What are some of the bigger firms looking for space?
Boyle: Healthcare packaging is big and we’re also getting into building supply, which was vogue from 2005 to 2007 as residential development was booming. Now residential redevelopment is booming and a lot of home suppliers are coming back into the market. Lake County is unique. It is the home of Abbott Laboratories, Baxter and many other very large pharmaceutical companies. A lot of their vendors want to be close to them, so that attracts a lot of those types of companies in Lake County.
IREJ: Is the market favoring tenants or landlords?
Boyle: I think in the past three months the pendulum has begun to swing from tenants or buyers to sellers and landlords. It’s not there yet, but it’s on its way, and I think that pendulum will complete its swing probably in early December.
IREJ: What are you foreseeing for the second half of the year for the overall Chicago industrial market?
Boyle: I think it will continue to be an improving trend. I think that’s a safe bet for the next 18 months barring unforeseen military events in Syria. I don’t like big political variables affecting my macroeconomic world. I’m very bullish on the Chicago industrial economy. Things are progressing very strongly along I-55 and I-80. The I-88 Corridor is becoming very healthy and I think the Chicago industrial market is thriving right now.
IREJ: What are some of the other reasons to be optimistic about the second half?
Boyle: I am seeing a great balance in demand. Three years ago, it was small companies. Two years ago and last year, I saw a lot of big companies. This year and in the past six months, we’re starting to see a balance. We’re starting to see a lot of smaller companies, medium-sized companies and larger companies and that to me is healthy. The 500,000-square-foot projects and above grab all the headlines, but the bread and butter of the Chicago industrial market is still in that 30,000- to 100,000-square-foot range. When those people are thriving, that is a very accurate litmus test for the Chicago economy and that sector of the market is doing very well currently. The lenders also are back in the market. Liquidity is back. The industrial economy is very much dependent upon liquidity. Liquidity means that buyers can buy and sellers can sell, builders can build and developers can invest. Now you’ve got all of the pistons firing within the engine. The fundamentals are present and that is what keeps me very bullish on the Chicago industrial economy.
IREJ: Switching subjects, the Association of Industrial Real Estate Brokers is holding its Trade Show and Developers Showcase on Sept. 12 in Oakbrook. As AIRE’s current president, why do you think it’s important for industry members to attend this event?
Boyle: The event is a place where brokers, developers, attorneys and general contractors can come together and catch up in a very free environment. I’ve got some younger guys who work with me in the office and the one thing I tell them weekly is that now is not the phase of the cycle to waste time. You must take advantage of this time because we are in a very fruitful phase for business development and now is the time. Events like these are very valuable. People have realized the power of networking over the course of three or four years. When times have been tough in the past couple years, we’ve seen activity within AIRE growing. That to me validates what we’re doing as an organization.