When will industrial real estate’s hot streak end? No one’s willing to guess just yet. And all signs point to the demand for this commercial sector to only continue to soar throughout the rest of 2022.
That holds true in the Midwest, too. Markets across the region are seeing an explosion of demand for warehouse and distribution space. They’re seeing a continued spike in the construction of spec industrial facilities, space that fills often before construction even wraps.
Chad Navis, director of industrial investments with the Kenosha, Wisconsin, office of Zilber Property Group, knows all about this. He’s an experienced industrial veteran, and his local market of Milwaukee and its suburbs are seeing a steady increase in industrial real estate demand.
Midwest Real Estate News recently spoke with Navis about the strength of the industrial market today. Here is what he had to say.
The industrial sector has been extremely strong throughout the pandemic. Can you talk a bit about the reasons for this? Why has this sector remained so resilient throughout the Milwaukee suburban market?
Chad Navis: Although industrial occupiers faced practical pandemic challenges, such as disruptions to the labor force and the supply chain, they did not experience the same shutdown requirements that users that occupy retail/service and office space did. Certain segments of the industrial market, especially e-commerce-related operations, naturally benefitted from the acceleration of online shopping activity.
Specific to the Milwaukee industrial market, it remains healthy given the lack of speculative space overbuilding, its high-quality labor force and the increasing acceptance of the location by national investors.
Are there any signs that demand for industrial space is lessening at all in your market? And what amenities are end users looking for when selecting industrial space in the Milwaukee area?
Navis: We continue to see strengthening in demand in the Milwaukee market, which in part has created measurable rent growth and asset-value appreciation.
All the long-standing characteristics of what makes a great industrial space option — immediate interstate access, institutional-quality construction, ample parking andtrailer stalls — are still important. However, we are seeing new interest in sustainability features, which likely stems from the growing popularity of ESG among corporations.
Are you seeing a lot of spec industrial construction in your market? And are those spaces filling quickly?
Navis: The majority of spec industrial construction is experiencing quick absorption in the market. Often, lease-up is occurring prior to building completion. In addition to general demand, this is in part driven by the extended lead times to procure primary construction materials and labor resources, which has had the effect of encouraging companies that could have been build-to-suit candidates to more seriously focus on available speculative buildings. They do not now have the time to go through the longer build-to-suit process and schedule.
Do you think many of the changes that we saw during the pandemic – such as an even-greater increase in online shopping – will remain after the pandemic continues to wane? Will these changes continue to positively impact the demand for industrial space?
Navis: The pandemic certainly poured gas on the e-commerce fire, which certainly will not burn out and seems unlikely to die down. Additionally, it cast downside light on the frailty of the just-in-time supply chain design that has been the model for a long time. Now that companies have experienced the quantifiable costs of not having raw material and product safely stocked, many of them are rethinking their supply chain approach. That will likely result in the need for larger industrial-space footprints among those businesses.
What makes the Milwaukee area, and the state of Wisconsin in general, such an attractive place for industrial tenants?
Navis: Labor is a top concern among industrial operations, and Wisconsin has a long history of having a sizable, skilled industrial labor force. Additionally, Wisconsin’s favorable regulatory and tax environment makes it an advantageous location to conduct business in.