Chicago In Focus, As Industrial Becomes Real Estate’s New Darling

Much has been written about the pandemic-precipitated problems plaguing real estate’s commercial sector. But with office and retail-oriented real estate feeling the ill effects of COVID-19, there’s one sector that seemingly remains in the pink of health.

That is the commercial real estate industry’s industrial sector, comprised of factories, warehouses, distribution centers, fulfillment centers, data centers and similar real property. JLL JLL recently reported e-commerce represents half its U.S. leasing activity, an increase from the 36% number registered prior to the onset of COVID-19.

The firm projects an anticipated $900 billion increase in online sales over the next half decade will translate to need for more than one billion additional square feet of industrial real estate by 2025.

In few places is the metamorphosis more evident than in the Chicago metropolitan area, which is able to leverage its advantage as a central U.S. transportation hub in supplying the factory, warehouse and fulfillment center needs of companies nation- and worldwide. A recent snapshot of the Chicago metro’s industrial market reveals new industrial leasing soared by 56.3 % year-over-year, based on 21.2 million square feet in new leasing activity, according to the latest Cushman-Wakefield report.

Surging demand

“Industrial assets remain largely insulated from the pandemic’s devastating economic toll,” says Robert Smietana, vice chairman and CEO of Chicago-based HSA Commercial Real Estate, which recently inked an enormous lease for its 757,880-square-foot, new construction warehouse project in the southwestern Chicago suburb of Shorewood, Ill., near Joliet.

“In recent months, we’ve seen demand for warehouse space surge as consumers and businesses rely on e-commerce for everyday needs. Supply chains have shifted in response to these broader changes, which have impacted not only how goods are purchased, but also where they’re sourced from, making well-located industrial facilities, particularly last-mile fulfillment centers, more essential than ever.”

Centrality’s significance

When it comes to explaining the Windy City’s attractiveness as a market for industrial development and investment, the metro’s enviable standing as a transportation center can’t be overlooked. So says Micahel Podboy, president of Chicago-based CA Industrial, which has grown its industrial team by 100 percent, expanded its U.S. footprint and recently wrapped up projects in major distribution hubs Cincinnati and Indianapolis, as well as in Chicago.

“With labor and transportation costs accounting for over 50% of costs in the supply chain, good transportation infrastructure is critical,” Podboy says. “Chicago sits at the epicenter of transportation, with its access to two international airports, multiple rail lines and interstate highways, with much of the country’s population accessible within a day’s drive.”

Indeed, according to Site Selection, the Chicago-Naperville-Elgin area stands within 24 hours drive time of 117,633,758 members of the American population.

What’s more, he says, given this nation’s objective of diversifying supply chain and reducing dependence on China, Chicago’s central locale and its deep talent pool are destined to loom ever more important with every passing year

The future

With supply remaining tight, logistics real estate is today’s most desirable asset class, asserts Dan Leahy, executive vice president and partner with Oak Brook, Ill.-based NAI Hiffman, which recently completed a lease for a major e-commerce company calling for two last-mile warehouses totaling 575,000 square feet in the near-in Chicago suburb of Cicero, Ill. The past two decades have seen Leahy complete more than 500 transactions, totaling more than $2 billion. Having won clients that include WalMart WMT , CenterPoint Properties and TA Realty, he is regarded among the leading industrial brokers in Chicago and the U.S.

“Pricing has strengthened as other asset classes have weakened dur to the effects of COVID-19 and capital has an insatiable appetite for industrial real estate,” he explained. “The shift to e-commerce is increasing activity for segments of logistics demand, including parcel shipping players and packaging providers.”

Added Smietana, “The growth of both B2B and B2C e-commerce could lead to a frenzied pace of new industrial development.”

This post first appeared on Forbes.com. To see the original, click here.