Why Container Shilpments are Stacking up at the Ports in LA?

6 reasons why containers are backing-up at the ports.  The article highlights a reason secondary ports (Savannah, Charleston, Houston, Norfolk) are increasingly important: companies are seeking strategies to mitigate their operational risk at the port of Long Beach.

container pic

Posted in Uncategorized

Q3 Chicago Big Box Report – Warehouse Vacancy Dramatically Decreases

Colliers releases Q3 Big Box warehouse statistics for Chicago.  Notable trends include:

  • Vacancy decreased from 10.49% to 9.72% – a significant quarter over quarter drop
  • 2.7 million SF were absorbed in Q3 – more than the 1.1 million SF absorbed in the first half of 2014
  • The I-55 corridor has one of the lowest Chicago sub-market vacancies at 7.52%

bigbox

Posted in Market Reports

Industrial Real Estate Mid 2014 Outlook – Leading indicators up on strong economic activity

Strong economic activity continues to translate into demand for warehouse space.  See the full Colliers report here.

Posted in Uncategorized

Industrial Vacancy Falls to Lowerst Level Since 2006

The local industrial real estate market has completed its comeback from the crash.

The vacancy rate for Chicago-area industrial space fell to 8.4 percent in the second quarter, down from 8.5 percent in the first quarter and 9 percent a year earlier, according to Seattle-based Colliers International.

The vacancy rate hasn’t been that low since third-quarter 2006, before the recession.

Vacancies are dropping amid growing demand for space among smaller and mid-sized businesses. The second quarter included 26 leases of 50,000 to 100,000 square feet, following 19 such deals in the first quarter.

 “The bread-and-butter middle-market companies that drive Chicago are active, whereas back in 2008, ’09 and ’10 they were doing anything they could to not spend any more money,” said Fred Regnery, a Rosemont-based principal at Colliers. “Now they’re feeling confident enough that they’re making long-term real estate decisions.”

Big companies are signing big leases, too. French tire manufacturer Michelin leased 1.7 million square feet in Joliet in the quarter, launching the largest build-to-suit development in the Chicago area in eight years.

The Chicago area’s vacancy rate, which peaked at 12.2 percent in 2010, has fallen in four consecutive quarters and 10 of the past 12. After apartments, the industrial market is the second-strongest real estate sector in the Chicago area: Local office and retail vacancies have yet to reach pre-recession levels.

Because companies manufacture and store products in industrial space, the market is often considered a good gauge of the wider economy. The improving job market — the U.S. unemployment rate fell to 6.1 percent in June, the lowest since September 2008 — is giving companies the confidence to expand.

‘RESURGENCE OF THE SMALLER USER’

“Chicago hasn’t had the explosive growth in new developments that some of the other markets have, but we’ve had a resurgence of the smaller user, manufacturers and smaller suppliers, filling up the smaller buildings,” said James Martell, president of Chicago-based Ridge Development Co. LLC, developer of the RidgePort Logistics Center, where Michelin is moving. “The strength of the economy is giving those smaller companies a real lift. They’re spending their money and expanding. Overall, that’s probably generating more jobs than the few bigger deals we’re seeing.”

Huge regional distribution centers, on the other hand, have recently been landing across state lines in Indiana and Wisconsin, Messrs. Regnery and Martell said.

Industrial developers and brokers have expressed several theories for large tenants’ shift across state lines, including Illinois’ politics and taxes, higher labor costs in Illinois, a desire to be closer to overnight mail hubs and changes in regional distribution patterns.

“Big distribution centers like Michelin, the Amazons and Wal-Marts, have gone past or around Chicago,” Mr. Martell said. “Michelin was a good coup for Chicago that we were able to capture.”

Other larger deals during the quarter included Swiss frozen bakery company Aryzta A.G.’s 17,076-square-foot lease in Bolingbrook and Connecticut-based Otis Elevator Co.’s 209,179-square-foot lease at 3451 S. Chicago St. in Joliet.

RENT HIKES

Demand, as measured by absorption — the change in the amount of occupied space compared with the prior period — was positive for the ninth quarter in a row. During that time, more than 30 million square feet has been absorbed from the area’s total 1.2 billion-square-foot supply.

Landlords are hiking rents as much as 5 to 10 percent in areas with limited supply, Mr. Martell said.

Developers completed 3 million square feet of industrial space in the area during the second quarter, with another 13.6 million under way—8.6 million of that “on spec,” or without tenants signed up in advance. The volume of space under construction is far more than the 8.8 million square feet completed in 2013, which was the most since 19.1 million square feet finished in 2008, according to Colliers.

“We’re not getting over our skis,” Mr. Martell said of developers, particularly on larger projects. “The general sense is, let’s get ready to pull the trigger so (a new building) can be up in six months. Get your pad ready, your drawings and your permit. (Developers are) still taking it a little more cautious.”

The new supply is likely to interest the increasing number of companies that, as the economy has improved, are looking for more modern space, Mr. Regnery said.

“We’re seeing middle-market companies upgrading their talent in operations and supply chain,” Mr. Regnery said. “They’re getting more sophisticated and they’re getting more demanding with their real estate. Across the board you’re seeing a premium placed on modern, efficient buildings. That leads to a bifurcation of rates between A and B product, and continued demand for new construction.”

Posted in Market Reports

Online Shopping is Big. It’s Also Tiny.

Amazon dominates the headlines on the havoc they are causing brick-and-mortar retailers as sales shift to online.  That is only half the story.  The other part is how small online sales are as a percentage of total retail sales.  The following chart shows online sales relative to in-store sales by category:

WSJ online sales

 

You can look at this chart in two ways.  First, the rumors of brick and mortar death are greatly exaggerated.  Most Americans continue to shop in a physical store.

On the other hand, this chart illustrates the how much of the potential pie remains for those companies who are good at online retailing.  Even market-leader Amazon has barely made a dent in almost 20 years. For retailers, online is still an open playing field with room for everyone to grow.

 

Posted in Uncategorized

How (and Why) Would a Company Brand a Warehouse?

20140426_WBD000_0

An obituary in the Economist for Wally Olins, the “high priest of the religion of branding” provides a good reminder that branding extends beyond products (The Ascent of Brand Man, The Economist, April 26). The idea that people and places can have brands is a relatively recent phenomenon that he championed in the 60’s.

“Brand-building, Mr Olins saw, is not just an add-on which the company can buy when it wants to launch a new product. It is an integral part of its long-term strategy that guides the sort of products it rolls out.”

Companies have long viewed their office environments as brand extensions that help to recruit talent and foster creative and productive environments.  Google’s new Chicago HQ is a good example. Now companies are extending branding to warehouses.

As e-commerce changes the nature of work that happens within a warehouse, companies like Amazon are branding their warehouse facilities.  Amazon has a public webpage dedicated to information on their fulfillment centers.  The public can schedule tours at one of six facilities throughout the U.S.  Amazon touts the safety, pay, innovation, and community engagement that make working in an Amazon fulfillment center unique.  Amazon points out it’s safer to work in their warehouse than a department store.

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So why should companies care about the brand of a warehouse few consumers will even see let alone step foot in?

This branding serves two important goals: 1) as a recruitment tool for people who may not think of warehouse work as a good career opportunity, and 2) a tool to change the negative feelings consumers may have of warehouse conditions.  This is a smart move for Amazon and not something a lot of companies take advantage of.

Companies have traditionally looked at warehouses and fulfillment centers not as a branding opportunity but as a place to reduce costs and optimize productivity.  As e-commerce operations increase the number of employees within these facilities, that attitude will change.  Amazon and other e-commerce companies routinely need to hire thousands of employees at each new location.  Branding matters for recruitment.  In addition, since a warehouse worker is the last person to touch the product before a customer receives it, Amazon smartly recognizes a branding opportunity that may differentiate their product offering with consumers.

When a consumer opens a newly shipped purchase, they don’t want to associate that product and buying experience with a low wage employee working in a dead-end career in a dark, depressing warehouse.  To the extent Amazon can successfully reposition that brand in consumer’s minds, they will create competitive advantage.

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Chicago Top Metro Area for Corporate Projects

Site Selection Magazine names Chicago as the metro area with the most corporate investment projects in 2013 (http://www.siteselection.com/issues/2014/mar/metros.cfm).

Top Metros by Project

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Posted in Market Reports