CHICAGO - The Chicago industrial real estate market, which includes Northwest Indiana, is achieving more success than it has in a decade.
The Chicago metro area had 18 million square feet of industrial development last year, the best in eight years. And the absorption rate, which is how fast rentable space is filled, is the best it's been in the last 10 years, according to an industrial panel at the recent Real Estate Publishing Group Commercial Real Estate Forecast in Chicago's Loop.
"Over the last 12 to 24 months, Chicago has really outperformed what the national perception of Chicago is," said Matt Goode with Venture One Real Estate, which partners with national institutional investors. "The coasts, L.A., New Jersey, Miami get a lot of attention, and certainly there’s a lot of activity in those markets. But Chicago's performing very well – a lot of leasing and rental rate growth."
Venture One has purchased about a million square feet of industrial and distribution space in Northwest Indiana because of its logistical and cost advantages, Goode said.
"There are financial benefits to crossing the border," he said. "So we're seeing opportunity in that market."
Overall the market has benefited from Amazon and other online retailers. A trend is to have warehouses where some light assembly, such as painting a phone case, takes place since so many orders are customized. Slightly more than 90 percent of sales the last holiday season were at brick-and-mortar stores, but e-commerce fulfillment centers have seen major growth.
Manufacturing is still strong in the Northwest Indiana and Southeast Wisconsin parts of the Chicagoland metro, said Brian Quigley, executive vice president with Conor Commercial Real Estate, which works with national institutional investors.
"We look at what drives a market," he said. "In Indiana and Wisconsin, it's manufacturing. They're the No. 1 and No. 2 states in the nation in terms of manufacturing as a percentage of the workforce. A lot of manufacturing is going on in Northwest Indiana and Southeast Wisconsin. In Northwest Indiana, it's very commodities-driven: You've got paper, you've got oil and you’ve got steel."
But those are low-growth, low-margin businesses that don't necessarily need modern buildings or equipment, Quigley said. They're often content with 25-year-old buildings, so low-cost real estate providers win.
That doesn't mean there is not new industrial space going up or being planned in Northwest Indiana.
Becknell Industrial, of Indianapolis, began construction on a 160,000-square-foot industrial shell building in Hobart's NorthWind Crossings last summer. The building is now nearly complete and already has a major tenant leasing a good portion of the building.
A knock on the greater Chicago market has been that rental rate growth is laggard because there’s endless land and it's easy to keep building further and further out, Goode said. But refill and redevelopment projects, such as Hoist Liftruck’s decision to take over a century-old tank factory in East Chicago, have been catching on.
The Northwest Indiana submarket is particularly attractive because Illinois’s financial problems have become national news.
"If you look at Indiana, if you’re employing a lot of people and you look at Indiana versus Illinois, frankly you're going to get a better deal in Indiana, on a couple of different levels," Goode said. "Your property taxes are going to be lower. There will be better incentives. The more people you have the better it's going to get."
But Northwest Indiana and Southeast Wisconsin will suffer in the long term if Illinois does, since Chicago is the economic engine that drives the area, Goode said.
"Illinois has to be strong," he said. "We have everything – logistically, labor, the cost of living are all there. It's just a matter of getting the state in order."
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