Chicago Metropolitan Commercial Real Estate Market: One big market? Or fractured markets fighting for visibility?
Chicago residents might be hearing a lot about competition these days. And this time, it's not sports-related. Chicago is in direct competition with Southeast Wisconsin and Northwest Indiana for manufacturing and other large-scale commercial real estate development. These areas are touting similar access to highways and labor force, while also claiming more stable governments and better tax incentives.
Greg Warsek, Senior Vice President and Illinois Market Manager, said while those might be great selling points, he thinks Chicago has even better ones, including a long history of commercial business and an intermodal station that is the hub for a huge portion of U.S. distribution traffic. Plus, even growth in submarkets can be construed as good for Chicago. Because, in a larger sense, Southeast Wisconsin and Northwest Indiana are a part of the Chicago metropolitan area, Warsek notes.
Chicago: bigger than just the Loop
"A lot of those markets, Northwest Indiana and Southeast Wisconsin, in my view, early on became really more spillover as you followed the interstates and distribution channels, you could see that growth going up into Wisconsin and east into Indiana, and it was really a product of the success of the Chicago market.
"In fact, if you look at (the) Chicago industrial data, it really includes Southeast Wisconsin and Northwest Indiana in all the brokerage reports," Warsek said. "Chicago is broken out into approximately 20 submarkets, which include those two out-of-state submarkets. In the analysis, that's how it's viewed, so when a user is in the market looking at different places that they want to be, that's always been on the board."
It can still be disheartening, however, if you're a Chicago resident who's had to watch businesses jump across the borders.
"I would say a great example that I use is Uline," Warsek said. "Uline was based in Lake County, Illinois for years – it's a family-owned business. They moved headquarters to Kenosha County in 2009. Not only did the move their headquarters, but they built a million-square-foot distribution facility right next door, and in the second quarter of this year, they broke ground on another million-square-foot distribution facility west of 94, right across 94 from the million-square-foot Amazon facility. So (those are) big investments that are occurring in Southeast Wisconsin. And it's no coincidence they're expanding. I think those two companies have made that submarket very legitimate."
Why Chicago plays such an important role in distribution
Chicago's ace, Warsek maintains, is its inland port in Joliet.
"In the Chicago metropolitan area, I would say the big drivers of that demand are, down in Joliet is the (CenterPoint) Intermodal (Center), and I think people lose sight of the impact of that facility," Warsek said. "When you have 18 terminals that are taking cargo containers off these trains and onto trucks and transporting throughout (the) central U.S., it's made Chicago – unknown to many people – the largest inland port in the country, and it's growing very, very quickly."
Beyond even that ever-spreading, cross-state-lines impact of the Chicago commercial real estate industry, Warsek notes there is impact of a national scale taking place. And Warsek has a hunch that national impact is going to get even bigger.
"If you look at the reports and what's going on and the volume that's flowing through that inland port in Joliet, they're actually looking to expand that. It's not really common knowledge, but there's land out there that's available to expand that intermodal, and we think that's going to happen.
"...This just isn't local, this is a regional and national impact, where 50% of the shipments that occur in the U.S. are flowing through that intermodal," Warsek said. "All that has to be distributed. It's creating huge real estate opportunities. And the other piece is the highway system, we have six major highways. One of the big ones being 80 that goes from San Francisco to New York and passes right through Chicago. It's a major distribution point. Same thing with I-55 going south. Within one to two days you can get to a big chunk of the U.S. from a transportation and distribution standpoint every day."
Amazon is spreading its footprint
Amazon is one of the major names making an impact on the commercial real estate market in the Chicago markets, sending its goods up and down those major interstates.
"You've got the fulfilment center up in Kenosha, which is a two- building, million-square-foot center that they built in 2015," Warsek said. "In the Chicago area, on the Southwest side, down in that 180 corridor near Joliet, you have two existing facilities that Amazon has: one that they built last year, and there's a new one that just came online. But there's been four new ones announced. And those are all around 400,000 square foot to about 800,000 square foot, some of them go as high as a million square feet.
"We're monitoring this whole Amazon program, because that's just the tip of the iceberg, the large fulfillment centers. Then they're going to have smaller facilities and then even smaller facilities as they move in town. For example, they have locations on Goose Island and the near South Side and the design there is to have a spot where they can offload and deliver to the homes within a day."
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