By Cliff Booth, founder and chairman, Westmount Realty Capital
Industrial real estate continues to be one of the most in-demand asset classes that is dominating the nation and headlines. Chicago is one of the country’s most critical industrial markets, an international trade hub for the Midwest, and remains a growing market for distribution networks. Despite the year starting with talks of a looming recession, inflation and federal rate hikes, the industrial market is as strong as it has ever been as the city and the region have seen historic low vacancies, growing rents and strong leasing demand for space. According to Colliers International, the Chicago industrial real estate market is demonstrating great resilience in 2023 and is one of the leading industrial markets in the nation, surpassed in importance by only the Southern California region. The city has a strong industrial market with robust demand and a current vacancy rate of 3.5%
Chicago is a vital industrial market due to several key factors, including its access to intermodal railway transportation, air freight from O’Hare airport, a high volume of national and international shipping, barge access for waterborne freight, and a densely populated area. One of the contributions to Chicago’s long-standing success is its diverse range of industries. The multi-tenant flex business park is a unique class of industrial real estate which has continued to experience sustained industrial demand. These flexible spaces have evolved to meet the escalating consumer demand for light industrial needs both in convenience and affordability. While this sector has not received the attention of traditional big-box industrial assets, the appeal of these highly accommodating multi-use spaces has continued in Chicago and markets alike.
Light industrial flex business parks are proving to be a thriving property type and a sound investment that is meeting the growing demand for flexible space. They offer several advantages as compared to high-rise office buildings and traditional big-box industrial assets, particularly when it comes to versatility. The flex buildings within these business parks can accommodate multiple uses, providing tenants with 100% pure office units, pure industrial units, lab spaces and blended-use unit offering a 50/50 mix of office and warehouse (flex space). Repositioning and converting these properties is relatively easy, which minimizes market exposure to one specific unit type or industry and allows for flexibility in space utilization.
Moreover, the ability to address tenant space needs by combining units, redesigning industrial spaces, or adding office elements provides owners with the flexibility to accommodate fluctuations in market demands and enables them to secure a broader range of tenant demand. When a tenant vacates, the opportunity arises to redesign the space to meet the current office-to-warehouse ratio preferences. The single-story format of these flex buildings on a large plot of land enables the conversion of current office space into flex industrial space, accommodating the needs of various tenant types. This contrasts with traditional high-rise office spaces that do not allow for loading conversion. The single-story configuration of flex buildings is also beneficial because it is easier to combine units to create an attractive layout as tenants grow within the same location, if loading is a necessary component.
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