Although Jason M. West, senior director of industrial brokerage services for Cushman & Wakefield, has not seen the final second quarter numbers for the industrial market yet, he says it feels like the activity levels are still strong.
“We have been extremely busy on both sides of the business,” West said. “The leasing side of the business, where we are handling properties, has been extremely active. So has the tenant representative side of the business where we are out representing companies that are looking for space.”
West said that it feels like demand is pretty strong, and because of that, he’s seeing a lot of new build-to-suit construction, new speculative construction, and the supply side making a comeback.
“From 2009 through 2012 there was really very little, if any, speculative construction because the industrial demand had slowed dramatically. There was a little build-to-suit activity, but not much to speak of in terms of new construction due to an abundance of existing building inventory users found to take off of the shelf, as opposed to building new.”
He added, “For the past three straight years we have seen positive net absorption, which has leased up a lot of that inventory. So now the developers and investors are building again.”
So what does Cushman & Wakefield expect for the rest of the year? They’re expecting a significant amount of new supply, particularly in the I-55 corridor.
“There are no less than six new construction projects in the pipeline along I-55, as well as in a few other spots around the market”, he said. “I think the new supply is going to be on pace, if not out pacing demand, for the rest of the year. So we’ll see what the second quarter numbers look like here shortly, but I expect it to be neutral in terms of vacancy rates. Vacancy rates should probably hover around the same spot, because I think all of the new supply coming online, is going to be counter balanced with the absorption that happened.”
As far as new developments go, as mentioned prior, most of the activity West is seeing, is in the speculative development area in the I-55 corridor.
“Molto Properties is developing an 189,000 square foot building,” he said. “Seefried Properties has a 237,000 square foot speculative building that is going up, Prologis has a speculative building that is 329,000 square feet, Duke has a speculative building that is 324,000 square feet, and Exeter Property Group has a property that is 219,000 square feet.”
He added there are a couple buildings that are close to being done. Those include IDI’s 600,000 square foot building, and Ashley Furniture’s 417,000 square foot building that is currently under construction.
With all of the development activity, West agreed that it undoubtedly means the industry is doing well.
“We’ve seen steady demand and solid absorption of space over the last three to four years. So the vacancy rate has dropped to a level where many developers and investors are comfortable building speculative product again, and building into what are relatively low vacancy rates for the corridor.”
Prior to all the good activity happening now, West reflected on the prior three to four years involving the economic downturn saying, “That time was pretty turbulent and then we turned the corner in 2012. So from then until now the industrial market experienced good, strong, positive absorption years. It has been so good that the demand has outpaced the supply.”
Positive absorption is a current market trend, but West says with all the new speculative product, he doesn’t think we are going to see positive absorption for the rest of the year.
“I think with the new inventory coming online, either vacancy rates are going to pick back up a little, or remain neutral. But I don’t see it going down. Whatever it does, I don’t see it going down in the I-55 corridor for the balance of the year because there is so much new supply that is coming online.”
As far as other market trends, there isn’t anything else West can point to besides E-commerce, which is what he says people are talking about significantly.
“I think in the industrial arena we expect e-commerce to be a major driver of activity for the next several years as the internet fulfillment and online sales, all continue to ramp up. The Amazon’s of the world, and all of the other retailers that are trying to follow what they have been doing to boost their online sales, are going to lead to a lot of industrial activity.”
He continued, “Society is trending away from making purchases at the store, they are doing a lot more purchases online. So on our side of the business, the distribution of those products has to be fulfilled through a warehouse, and we see that activity increasing in the next several years.”
With his 18 years of experience in industrial real estate, West says the role technology has played in the industry cannot be missed.
“We see technology evolving in the buildings themselves with lighting, dock equipment, and things like that. We see it in the way that products are shipped and the whole supply chain, how companies are tracking shipments, and being able to deliver the products to the customers faster. It’s constantly evolving.”
As far as future trends, West says the industrial industry insiders are keeping an eye on increasing intermodal traffic, fuel prices, and same-day delivery models, which will impact the warehousing and distribution markets going forward.
West has also seen and learned many things in his 18 years, saying the industry is a great place to be.
“I think industrial real estate tends to be more even keeled than a lot of the other product types,” he said. “Even during the downturn, industrial never got as bad as retail and office for example. It’s been fairly stable, especially in metro Chicago.”
“We’ve got such a diverse economy here with a strong manufacturing and distribution base. We’re servicing 10 million consumers in this region, so it has been very positive, and it is an exciting time to be an industrial broker.”