Industrial Developers in a Sweet Spot

CHICAGO—E-commerce and its likely impacts on the industry was on the minds of many at BMO Capital Markets’ 10th Annual North American Real Estate Conference, held Monday and yesterday in Chicago. But the overall mood was one of optimism. As reported in GlobeSt.com, even bricks-and-mortar retailers were upbeat, saying that the ability to buy products online was, besides convenient, another way for consumers and outlet stores to connect. And industrial developers were also buoyant about the possibilities provided by e-commerce.
Speaking at a Monday afternoon session on the future of warehousing and about some of his company’s latest projects, Marshall Loeb, president and chief operating officer of EastGroup Properties said “almost every tenant has some component of e-commerce in their space.” And the need for distribution facilities should continue to grow, as companies like Amazon are going to complement their massive distribution centers with smaller fulfillment facilities located closer and closer to urban cores to handle those last few miles of delivery (Brian J. Rogal)

Q2 Office Leases

CHICAGO—The American economy continues to expand and the national office market grew along with it in the second quarter, according to a new report from JLL. The Chicago-based firm found that leasing activity increased from 54 million square feet in the first quarter to 64 million square feet in the second, an uptick of 17%. In addition, 40% of second quarter office transactions of more than 20,000 square feet were occupier expansions. This was the fourth consecutive quarter that saw expansions in 40% to 50% of such leases.

New Life for Smaller Warehouses

Recently there has been a number of announcements that smaller warehouses have once again found use.  Of course the new variety of 50,000SF warehouse has all the amenities their big brother 500,000SF has- 35' ceilings etc. What is interesting is the way e-commerce businesses have brought this product back.  The Christmas debacle of a few years ago, (remember all those disappointed kids not getting their toys on time?) has led to some changes in distribution.  E-commerce businesses are taking note of the fact that when a consumer is ordering a product on line, they also want it as soon as possible-next day.  To accomplish that, it is obvious that the product needs to be located within a short distance to the end user.  Enter smaller strategically  located warehouses.  It makes sense.

According to CoStar: 2015 Could Be the Year Omni-Channel Retailing Gives a Boost to Landlords

Unconfirmed reports emerged earlier this week linking Amazon.com and RadioShack Corp. in talks over Amazon taking over a chunk of Radio Shack's mall-based stores as the debt-straddled electronics retailer prepares for an expected bankruptcy reorganization. 

However, whether or not such a deal materializes is immaterial. The fact is, sooner or later, Amazon, Google and several other online retailer will likely become much larger players in brick and mortar retail space.

The omni-channel phenomenon is becoming increasingly prevalent among retailers and is already starting to create new stores and bringing in new customers, as well as forcing retailers to freshen up their store offerings and space. This in turn, is bringing shoppers back in the door with their phones in hand. 

To be successful retailers, we must embrace omni-channel. Complete transparency and real-time information of inventory in the store and warehouse is essential and must be seamless to the customer,” Mathrani said. “Removing barriers to buying spurs customers to purchase more.” 

Regardless of a potential Amazon / RadioShack deal, Amazon is already well on its way to a brick and mortar presence. At the end of 2014, the online retailer had already opened up 15 'sortation centers' (think big box store) across the country, Amazon CFO and senior vice president Tom Szkutak reported. 

Zappos, which began as an online reseller of footwear, recently opened its first-ever store, a 20,000-square-foot shop in Las Vegas. The store offers shoppers the same technology as its website, while offering the added dimension of actual goods.

“To these retailers and many others, the physical store is about advertising a business in a way not possible online. The store allows them not only to sell products but also sell their brand,” the GGP CEO said. “They have all come to the conclusion that they need to have a brick-and-mortar presence to be profitable. Online is an incubator for brick-and-mortar. And they do this at the hub centers and urban retail.” 

Suburban Chicago Office Vacancy Rate Drops

22.6% office vacancy rate for suburban Chicago in the 4th quarter is down from 23.4% in the previous quarter.   More locally, the western section of the east west corridor (I88) remains among the highest in the Chicagoland submarket weighing in at 26.1%. While that rate still seems high keep in mind that this is the lowest level in more than 6 years, showing a long overdue recovery from the great recession.   How much office space was leased last year? How about 1,643,439SF which is the
highest amount since 2005.

They say "The trend is your friend" hopefully in 2015 that will prove to be a very cozy relationship.