In today’s world, according to Todd Heine, principal at Avison Young, companies are getting more and more specialized in what they do, honing in on what they do better than anyone else, and developing specialized buildings to further help them fulfill their specific needs.
“These companies that specialize in certain products and services, need highly specialized buildings,” Heine said. “Which means if you’re going to make bread, you need to be the best bread maker you can be. So these are long term investments in real estate. We are seeing developers take existing functionally obsolete plants, raising them, and developing modern facilities for future tenants.”
Often times with the amount of capital tenants are putting into the building, and the long term commitment to the space—sometimes 10 to 15 years—according to Heine, it makes sense to get things right and specialized for their exact use, so they can be most efficient and profitable in the space. A project Heine is excited about is the largest existing new development infill site currently available in Chicagoland. The property is a joint venture between Denver-based Dermody Partners, and Boston-based AEW Capital Management.
“It’s located in McCook, and the owners built two speculative buildings totaling 650,000 square feet,” said Heine. “It has value because people need an infill location. So this is an opportunity for them, and there is very limited supply of anything like that. There is only one other building in the market able to deliver that today. I think that greatly speaks to the confidence that developers, and capital partners, have in the ability to be close to the population bases.”
“Developers are getting into the speculative market as well,” Heine added. “Traditionally, a large amount of developers always started in Chicago, then it was all about the western progression, right? Now, these developers want to come back to develop sites for companies that need to be close to rooftops.”
Heine pointed out that it isn’t just companies like Amazon either, but any company that has end users that are basically a home or a business.
“Be it Office Max, Home Depot, Lowe’s or Target,” he said. “All of their models are changing before our very eyes, and in order to compete with the online space, they have to have the ability to get product to the consumers as fast as possible, this will likely mean some same-day deliveries.” Heine continues, “It’s debatable as to when that will actually take off, but from a business perspective, it’s going to be very important. So yes, we see Amazon as the front runner, but certainly others are waiting in the wings as well.”
As it relates to the food distribution market, according to Heine, companies need to be close to a strong workforce because it tends to be a little bit more labor intensive than many other manufacturing jobs. “Ultimately you need to be close to a viable workforce,” he said. “Also you need to have the ability to ship products to different providers and so forth.”
For 2015, Heine expects absorption to continue in Chicago’s industrial market.
“We’ll continue to see the capital markets looking to place money in quality product, and quality markets,” he said. “How long will that last? That’s hard to say, but new construction statistics will be even larger in 2015. That means more square footage coming out of the ground this year than in 2014. It’s going to be a banner year for new construction.”