In addition to the trickle-down effect, other creative methods are at play. Amazon would previously occupy buildings in the 1.2 to 1.8 million-square-foot range in markets such as Chattanooga. The current strategy is to take smaller spaces in high population urban markets to better compete with competitors for same-day delivery. Last year, it leased a 300,000-square-foot space in an Atlanta industrial park, and recently, it subleased 500,000+ square feet in Atlanta.

With 14 consecutive quarters of positive net absorption, quite simply, the industrial market is on fire. In fact, during the last four quarters, activity was 57+ million square feet (the fourth highest on record). Also a record-breaker was new construction, which increased to more than 21.6+ million square feet, with spec construction grabbing the bulk of the projects, at 13.2+ million square feet.

This begs the question: What's driving this spec construction? First, there is pent-up demand for next generation, high-tech facilities. Second, there has been a lack of supply for the past 7 to 8 years. Third, financing continues to be aggressive, with banks now lending 65% non-recourse money to spec developers, and fourth, the investment market is cap-rate compressed, which means there is too much money chasing too few deals, thus cap rates are falling for class-A, class-B and class-C product, pushing sales prices to all-time highs.

For example, a new construction project located in a good submarket and leased to a good credit tenant for 10 to 15 years would have a cap rate of less than 6. Some cap rates have been reported in the 5.5% to 5.8% range, and there is a rumor that an investment property is about to be sold at a 5.25% cap rate.

In today's highly competitive industrial market, flexibility is the key in order for developers to win business from e-commerce users, along with the normal distribution user. Today's user has unique ceiling heights, parking requirements, amount of office space needed, etc., so the developer that anticipates those requirements and can adapt to those needs will win the day.

Lastly, green buildings and sustainability have become important to users, however, prior to the capital markets meltdown in 2008, it was very hard to get end users to pay extra for a green building. Today, for the Fortune 500 type of end user, it can be a deal killer if the building is not certified in a LEED category. From energy savings on T-5 lighting, to motion sensors on the warehouse lighting, to capturing the rain water from the roof to water the lawn or flush the toilets…sustainability is here to stay.

Midwest Industrial Market Conditions

Throughout much of the Midwest, particularly in core markets such as Chicago, but even in secondary markets such as Fort Wayne, IN, the prevailing condition for industrial real estate is that landlords and sellers have leverage over tenants and buyers. Demand for space is exceeding supply to the point that many of the speculative development projects in the Midwest are leased before the building shells are completed.

Vacancy rates are declining throughout the Midwest, with Chicago trending in the low-7% range, Cincinnati at about 6% and Columbus closer to 5%, versus a historical average of approximately 10% in all three of these markets.

From an occupier's perspective, like the Southeast region, there is an abundance of capital in the Midwest chasing a scarcity of opportunities, with most investors seeking class-A industrial product. The newest buildings with the most functionality and features (clear height, parking, trailer space) with in-place, good-credit tenants and plenty of term left in leases are the “belle of the ball” in terms of popularity. The investor competition is high for this product with a Fortune 500 tenant as the lessee is compressing cap rates into mid-single digits.

REITs are by far the biggest players in today's investment and development segments but there are plenty of private development entities in the game. The majority of development is less than 500,000 square feet, but Hillwood Investment Properties' 746,800 square feet at Laraway Crossings Business Park in Joliet, IL; Bridge Development Partners' 626,800 square feet at Bridge Point North in Waukegan, IL; and Ridge Development's 574,900 square feet at RidgePort Logistics Center in Wilmington, IL are among the most notable large projects underway in Illinois alone. DCT Industrial has a 350,000-square-foot build-to-suit lease underway and Panattoni has nearly completed a 316,700-square-foot speculative development in the Chicago metro.

The attention on core markets and class-A product is also producing a trickle-down effect for investors to seek opportunities in secondary markets in the Midwest. For example, Continental Property Group LLC purchased a 862,450-square-foot multi-tenanted industrial building at 3405 Meyer Road in Fort Wayne, IN from Industrial Realty Partners I LLC. While the price cannot be disclosed, it was north of $20 a foot, above average for Northeast Indiana.

One of the more interesting comments heard at the SIOR conference is that the shrinking labor pool has become an issue for operators of warehouse and distribution facilities. There simply are not enough qualified workers to fill good blue-collar jobs in the Midwest. For example, the unemployment rate in Columbus, OH was 3.8% at mid-year 2015 compared to 4.3% at the end of the fourth quarter of 2014. Unemployment in Columbus is the lowest it has been since 2001 and this is happening in other Midwestern cities too.

Key indicators continue to suggest that industrial markets in the Midwest will continue on a strong growth path. Low gas prices, low interest rates and strong auto sales are all factors that will positively impact the region's industrial sector.