Economic Impact

The Future of Industrial Property in Chicago

Katy Pilling

Jun 18, 2020


In 2019, two elections in Cook County changed the political landscape. Mayor Lori Lightfoot is focusing her platform on reform and bringing investment to struggling Chicago neighborhoods and smaller businesses rather than the soaring skylines of downtown. She also aims to increase economic activity throughout Cook Country. In his election as Cook County Assessor, Fritz Kaegi’s efforts to reform the county’s property assessment process may also have added to the stress of the industrial property market because the changes have often resulted in double or sometimes triple property assessment taxes. With these two significant changes in authority, there were already concerns about the effects on the real estate market for 2020.

Despite these concerns, the first few months of 2020 saw an increase in industrial real estate market activity compared to 2019. Last year, Chicago saw just 10 leases of greater than 500,000 sq ft compared with the seven leases of this size in only the first four months of 2020.

Many disruptive forces are at play that will have ramifications on the industrial real estate market, but the ultimate effects of these disruptors are yet to be known. These forces include:

  • the current tax increases in Cook County,
  • economic instability due to the sudden emergence of the COVID-19 pandemic,
  • an increase in unemployment across the United States,
  • enforced stay-at-home orders, and
  • an increase in employees and employers working-from-home.

Industrial Logistics

For larger industrial buildings that span many acres and consist of thousands of usable square feet, there are challenges of finding enough land on which to build as the real estate market eats up more and more space. These larger industrial buildings once were concentrated near Interstates 80 and 55, but the area of construction has started to spread. In April, Amazon received a permit from the City of Chicago to build a 145,000 sq ft building at 100500 South Woodlawn Avenue. It will be used as a distribution center once it has completed construction in October 2020. With the exception of this large industrial real estate deal, the rise of e-commerce fueled in part from the effects of the pandemic, the recent demand for larger industrial buildings in the Chicagoland area has been mixed. With the unfolding events of the COVID-19 pandemic, companies like Amazon and Target have felt minimal negatives effects in terms of their real estate property because of the increase in e-commerce, whereas other companies, such as Hertz, have declared bankruptcy and the buildings that they occupy may soon sit empty.

Industrial Manufacturing and Distribution Centers

In this sector of industrial property real estate, it is predicted that there could be a large increase in warehouse demand as companies move their manufacturing operations from other countries back to the United States. Brought on by a distrust of foreign governments (specifically China), the need to shorten the supply chain, and a desire for easier access to customers, these companies may seek the manufacturing of their products elsewhere, despite the initial choice to move their operations to other countries for cheaper labor. Chicago is a hub for future opportunities for several reasons: its space for further industrial development, the array of open buildings for lease, and the large well-qualified educated labor pool that continues to increase as unemployment rises.

Industrial Flex Buildings

With current concerns over the spread of the pandemic and the need for better sanitation, the future for offices is uncertain as stay-at-home orders and work-from-home practices continue. Instead of considering commercial office spaces, employers are looking to flex buildings because of their more-isolated offices and bathrooms and the lack of common areas, all of which will limit coworker contact. In Chicago, companies are looking to the future and discussing with architects and building owners the changes that will be implemented to minimize future chances of the spread and transmission of COVID-19. These flex buildings, with the ability for companies to adapt the larger space to suit their business needs, are expected to become more popular.

Industrial Light Buildings

Because these buildings usually house many tenants with small businesses, and Chicago has been shut down for months in an effort to curtail the spread of COVID-19, these businesses will probably be the hardest hit. Without the option of working from home or the ability to continue to pay workers such as many other big corporations, many small businesses could disappear, leaving these buildings empty. Additionally, with the rise of e-commerce, and the possibility of many companies to continue work from home practices even after the shutdown ends, this sector of industrial property real estate may never quite look that same as before.

Final Thoughts

There are many changes on the horizon for industrial property, making the future of industrial real estate in Chicago, and many other large cities in the United States, uncertain. Many companies were already caught off-guard by the pandemic because they were still adapting to the changes brought on by Mayor Lightfoot and Assessor Kaegi, and the ramifications of the pandemic represent another fallen domino in a line of changes that show no sign of stopping. As the economy rebuilds and eventually settles after the pandemic ramifications, and with the laws and regulations that will be possibly adapted to help alleviate pressures and hardships, it will be interesting to see how much Chicago, with its economic reliance on industry, will change.

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