IllinoisIndustrial Smooth roads ahead for e-commerce real estate Matt Baker August 3, 2020 Share on Facebook Share on Twitter Share on LinkedIn Share via email 2233 West Street in River Grove, Illinois. Brookfield Properties acquired this 220,000-square-foot truck terminal from Go2 Logistics in a sale-leaseback deal. While the COVID-19 situation has placed potholes and hairpin turns in front of some sectors like retail and hospitality, there’s nothing ahead but freshly laid asphalt for industrial real estate—particularly e-commerce-related properties. New projections suggest that this segment will grow by 1 billion square feet over the next five years. JLL’s second quarter industrial outlook identified a number of trends, noting a sub-6-percent vacancy across the country—with leasing velocity overwhelmingly propelled by e-commerce activity. As shelter-in-place policies constrained brick and mortar retail, more and more consumers turned to online shopping to acquire essential items. This uptick in demand has intensified the years-long trend that has seen users take more and more logistical space. JLL predicts that e-commerce sales could reach $1.5 trillion by 2025—a mile marker that would equate to an additional 1 billion square feet of warehouse space across the U.S. “E-commerce has been one of the biggest game changers to supply chain management since the introduction of the world wide web and the internet,” said Rich Thompson, JLL’s global supply chain and logistics consulting leader. “It has fundamentally changed the way consumers buy as well as their expectations for delivery.” Another interesting trend is the 11.4 million square feet of leasing activity that the food and beverage sector recorded this quarter. Restaurants have been hammered by the pandemic, and thus so have their suppliers. But this activity, accounting for a 5.2-million-square-foot quarter-over-quarter increase, was driven by wider use of online grocery shopping. Chicago The impact of e-commerce was also felt in Chicagoland, where the segment accounted for 4.7 million square feet of the metro’s leasing volume in the second quarter. That’s the equivalent of 53 percent of all transactions in the area for the quarter. In fact, most metrics indicated that Chicago industrial real estate activity proved to be unencumbered by wider economic volatility. The sector witnessed 7.1 million square feet of positive net absorption, outpacing the absorption of the previous quarter. Between Q1 and Q2 of this year, the vacancy rate did not waver from 6 percent across the metro. Space availability was particularly tight in nine submarkets that had a vacancy rate below 5 percent and none of Chicago’s submarkets elevated into double-digit territory. Much has been written about the “Amazon effect,” but for Chicago during Q2 2020, the effect was very real with the e-commerce giant connected to the area’s four largest leases. These transactions spanned four submarkets within two states, encompassing 3.4 million square feet. Two of the deals that Amazon inked are for new robotics fulfillment centers in Matteson and Markham, Illinois, located in Chicago’s south suburbs. Seefried Industrial Properties will construct the facilities, which will total approximately 1.7 million square feet combined and bring 2,000 jobs to the Southland. The automotive industry was another active participant. Mazda, Hyundai, Brake Parts Inc, American Tire Distributors and Camso USA all completed leases in the Chicago metro during the second quarter. Among the notable investment sales for the quarter, Prologis sold two Amazon-occupied buildings totaling 1.6 million square feet in Kenosha, Wisconsin to Alpha Industrial Properties. Go2 Logistics unloaded their 220,000 square foot truck terminal in River Grove, Illinois in a sale-leaseback with Brookfield Properties. Jeff Provenza, senior vice president of Darwin Realty | CORFAC International, brokered that transaction. Nationally, the construction pipeline appeared to be undeterred by turbulence and delays caused by the pandemic. There were 78.5 million square feet delivered and another 280.6 million square feet under construction at the close of the second quarter. In Chicago, there was nearly 12 million square feet of new industrial space completed at mid-year. While many speculative projects hit the pause button because of COVID-19, a few developers are going ahead with spec projects in the O’Hare, I-80, Lake County and North DuPage submarkets. This activity, as well as build-to-suit projects for Harbor Freight, Ferrara Pan, Amazon and other users, mean that there are now 16.4 million square feet of new construction in Chicago’s pipeline. Chicago is well-served both by its robust transportation infrastructure and a diversified economy. These two factors should help the market drive past any short-term roadblocks thrown up by the pandemic.