NAIOP panel reveals e-commerce, industrial trends impacting Chicago

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With e-commerce booming, industrial is adapting to new distribution challenges daily. The Chicago market, centrally located and gaining favor among global capital, finds itself at the convergence of those changes.

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JLL’s Kris Bjorson

JLL’s Kris Bjorson, International Director and Head of Retail/E-Commerce Distribution, spoke to a packed auditorium at NAIOP’s All Star Industrial Panel in Rosemont last Thursday.

The panel, which also included LaSalle Investment Management Managing Director Paul White and Panattoni Development Partner John Pagliari, broke down four key market trends affecting global industrial in the Windy City.

1) Winning the “Last Mile”

The NAIOP All Star Industrial panel.

Only 30 percent to 40 percent of retailers have implemented a robust e-commerce strategy, Bjorson said. The goal is same-day delivery.

That means e-commerce’s “last mile” – meaning how its products get to your doorstep – will increasingly come into play around Chicago as more companies adopt e-friendly distribution models. This will spur smaller, urban infill industrial deals, as retailers look for dark stores, particularly around FedEx/UPS hubs, to convert and rezone.

While deal flow had shifted from the Chicago area to Wisconsin and Indiana, users are coming around since proximity to population density is crucial, Bjorson added.

2) The Spec Priority You Can’t Forget: Workforce Proximity

After evaluating land basis and transportation access, the next step in spec development should be correlation to workforce, Bjorson said. The Chicago area has land with serious workforce shortage constraints, such as the I-80 and I-55 corridors, which means developers need to focus on building industrial product around pockets of available labor.

Bjorson said he sees a 10 percent run-up in replacement cost that’s a combination of both increased land and construction costs, looking at development around the country. A reduction in soft costs, like fee compression, has helped offset that spike.

3) Hola, Bonjour, Konichiwa: Industrial’s Awash in International Capital

The crowd of industrial elite at NAIOP’s event in Rosemont.

International investors have taken notice of the Chicago industrial market. Look no further than Singapore-based sovereign-wealth fund GIC Pte’s $8.1 billion purchase of IndCor Properties from Blackstone Group.

Increasing amounts of international investors are coming on as 49 percent investors in portfolio deals, White said. LaSalle has a separate account for a European insurance company, for example, which is looking to leverage record-low interest rates to invest in US industrial with aggressive cap rates (low four percent on the West Coast, around five percent in Chicago). Both international and U.S. open-end core funds are using the durability of net cash as their top metric when evaluating deals. And operating fundamentals, including record rents and vacancy rates around the market, are in their favor.

4) The Beauty of Diversification: Port Problems

West Coast U.S. ports shut down for a couple months due to labor disputes. They’re still playing catch-up and supply chain is hurting. The easiest diversions have been via Oakland, Tacoma and Prince Rupert, Bjorson said, meaning product isn’t just coming in on the BNSF and UP.

Like the workforce issue, this is an opportunity for industrial to mobilize and develop around other railroads like CN, NS and CSX, since big clients will undoubtedly diversify to prevent such major stoppages in the future. Current product around CN terminals is mainly Class B and Class C, Bjorson said.

For more information concerning JLL’s e-commerce solutions, please contact Kris Bjorson at kris.bjorson@am.jll.com or visit JLL.com. Follow him on Twitter at @KrisBjorson.

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