Ringing the outskirts of Chicago and its suburbs like a glistening diamond necklace are a series of 22 intermodal rail yards.
These bustling facilities are buzzing with activity 24 hours per day as cranes transfer hundreds of cargo containers per hour from towering stacks to semi trailer trucks and rail cars belonging to the biggest railroads in the US — including the Burlington Northern, CSX, Norfolk Southern and others.
Intermodal Driving Warehouse Construction
Chicago — like the nation’s other major transportation hubs, including Atlanta, Georgia, and Dallas/Fort Worth, Texas — is experiencing an explosion in the development of its industrial real estate. And a lot of the building boom has to do with the success of the intermodal yards, according to a report issued this month by the global real estate group Cushman & Wakefield.
In its three-year forecast that looks at trends in warehousing and distribution centers, as well as manufacturing, the real estate group said demand for industrial property is being caused by companies that have “gone on the offensive” as a result of a surge in hiring.
US Employment Increasing
US businesses added an average of 288,0000 jobs per month between December and February, and a total of 3 million new jobs are expected to be added by the end of this year.
While payroll rosters are filling up, the amount of unoccupied warehouse space is quickly drying up.
The US warehouse vacancy rate stood at just 6.7% in the fourth quarter of last year. And that was the 19th consecutive quarter that it declined, according to the Cushman report. By the end of this year, it’s expected to fall below 6.3%, despite all the new industrial construction.
Online Retail Spurring Demand
The reason for the increased demand for warehouses and distribution centers can be summed up in one word: e-Commerce.
As an increasing number of consumers shift to the Internet to buy the products they want, retailers are scrambling to find enough warehouse and DC space to handle the exponentially larger number of online orders.
“With increasing online and mobile purchasing volumes opening new frontiers in the way we shop and do business, we see the demand for distribution services moving from fourth to fifth gear,” the report states.
Cities like Chicago have a built-in advantage due to their existing intermodal infrastructure. But in secondary markets cities such as Indianapolis and Kansas City, construction crews are working overtime just to build enough facilities to keep up with consumer demand.
Canada, Mexico Also Benefit
Commercial activity in Canada and Mexico also is expected to increase, according to the Cushman report.
In Toronto, nearly 7.3 million square feet of warehouse space was under construction during Q4 of 2014. And a boom in oil production in Calgary is leading to a corresponding increase in logistics construction, such as rail line improvements and and updated highways.
Meanwhile, for the first time in two decades, the US Department of Transportation plans to accept applications from Mexican long-haul trucking companies for authority to operate in the US, opening America’s roads to Mexican semis for the first time.
And those trucks are going to be filled with products. In Mexico City, the country’s capitol, industrial vacancies are about 5%. But e-commerce retailers are moving in to occupy that space, as well as any available warehouse facilities in Monterrey.