For an industry that measures its vitality by the quarter, a lot has changed for commercial real estate between Q1 and Q2 of this year. But even as the COVID-19 crisis elicits stagnation and contraction in some segments of CRE, the industrial sector is only flourishing.
Last September, John Joyce, CCIM brought his 25+ years of experience to SVN Chicago, to help build out a new industrial venture. As managing director of SVN Chicago Industrial in Rosemont, Illinois, his job is to grow an industrial division, to capture some of the market share of an ascendant asset class. While many are pumping the brakes because of the pandemic, he only sees green lights ahead.
“I’m finding it a good time to be recruiting, because there’s so much uncertainty right now,” Joyce said. “Firms that maybe didn’t have a growth trajectory, like SVN does, are questioning their ability to succeed at their highest level.”
For those who play in the office arena, there are worries that leases will shrink in the years ahead as corporations grow more work-from-home tolerant. With each month that passes, those holding onto multifamily assets are also holding their breath that rents keep coming in. And the tragedy that is retail, of course, has only seen its pre-pandemic fate quickened.
That last situation is directly inverse to what is occurring in industrial. The growth of e-commerce was a boon to one sector and a bane to the other. With the pandemic temporarily shuttering many brick-and-mortar retailers, late adopters are turning to online shopping out of necessity—and many will become converts due to the convenience that it affords. This, in turn, will only hasten the demand for logistics warehouses.
Most companies were caught off guard by the pandemic, and so they have been increasing inventories. According to Joyce, this unexpected rush for goods as organizations build up their safety stock could lead to between 1 and 2 billion square feet of increased warehouse demand.
And then there’s manufacturing. Decade after decade, companies have sent manufacturing jobs overseas, mostly to China, chasing cheap labor. There is a lot of optimism that some of those corporations will bring these jobs back to U.S. soil, both to shorten the supply chain and out of distrust of the Chinese government—both factors that became more clear under the lens of the COVID-19 crisis.
“As these jobs repatriate back to the United States, some of them will land in the central states, because there are so many sites that are shovel ready and we have a great labor pool here,” said Joyce. “What’s great about the Chicago metro area is a high level of qualified, educated workforce.”
Before this downturn, the sector was facing serious labor shortages. With many workers sidelined because of the pandemic, companies may have an easier time filling positions in manufacturing or logistics facilities.
While leasing velocity will only maintain its break-neck pace, the situation will likely be quieter on the development side. According to Joyce, there is plenty of supply in Illinois and southeastern Wisconsin. Any build-to-suit projects that land in the area are likelier to occur in supply-constrained, business-friendly northwest Indiana.
His team recently picked up the assignment for 103 E. Bailie Street in Kentland, Indiana, about equidistant between Kankakee and Lafayette. More than half of the 205,000-square-foot, cross-docked facility is available for lease and the 20-acre site is ripe for new development. It would be an ideal landing pad for a manufacturer looking for both lower taxes and access to the Midwest largest metros.
SVN Chicago Industrial has hired six advisors since last fall, and Joyce said he has offers out to two more. Even amidst this turmoil, he expects nothing but progress in the months and years ahead.
“My advice to the younger advisors is to take this crisis and make an opportunity out of it. They have to work harder than they ever have before so that when businesses come back, we’re ready to go and not setting up then,” Joyce said. “They need to distinguish themselves in the marketplace, maybe take a drive on Saturday morning to see who’s still working—that’s going to tell you who’s outgrowing their facility.”
Joyce proclaims SVN’s collaborative foundation as another reason that he’s been able to keep the rudder steady during the pandemic.
“Team spirit is really important here,” said Joyce. “Going into the market with enthusiasm and industriousness, we’ll show our clients that we are leaders that have the resources to assist them during uncertain times.”