Key Takeaways
- • Prologis is bucking Chicago-area industrial market trends by pursuing new ground-up speculative development even as the regional construction pipeline has fallen to about a third of its level four years ago.
- • Prologis SVP and Investment Officer Josh Zemon said at Bisnow's Chicago Industrial Summit that the company will continue building on spec through infill projects, describing the strategy as "hand-to-hand combat."
- • Industrial space under construction in Chicago was 11.4M SF in Q3 according to Colliers, down from more than 37M SF at the Q3 2022 peak.
- • Prologis entered a joint venture with Gaming & Leisure Properties to develop a 3.8M SF industrial park on the former Hollywood Casino Joliet site, and has acquired sites in Glendale Heights and Minooka earlier this year.
- • Access to existing ComEd power is a key competitive advantage, and rent growth on new development is offsetting higher interest rates and cost of capital.
Summary
Prologis, one of the most prolific developers of industrial real estate in the United States, is expanding its Chicago-area development activity despite a sharp slowdown in the regional construction pipeline. Senior Vice President and Investment Officer Josh Zemon made the case at Bisnow's Chicago Industrial Summit, held at the Renaissance Chicago O'Hare Suites, describing the company's infill strategy as demanding but rewarding. "It's hand-to-hand combat. It's very hard, but that's what makes these opportunities so special," Zemon said. "You're going to see more and more of Prologis doing projects like that on spec."
The company has built up its Chicago-area pipeline over recent months, acquiring sites in Glendale Heights and Minooka earlier this year. In late October, it entered a joint venture with Gaming & Leisure Properties to develop a 3.8M SF industrial park on the former Hollywood Casino Joliet site. According to Colliers, the amount of industrial space under construction in Chicago was 11.4M SF in the third quarter, compared with more than 37M SF at the Q3 2022 peak.
Zemon said Prologis' strategy is shaped by customer demand. The firm is targeting infill submarkets with high barriers to entry and building large properties with few comparable vacant, high-quality alternatives. Leasing activity has concentrated on tenants upgrading Class-B and C space, which supports continued rent growth on new development. That growth, Zemon said, offsets higher interest rates and cost of capital. He stressed selectivity, noting the company is not pursuing every opportunity and is focusing on submarkets where it has high conviction.
Power access is a central constraint. Zemon said redeveloping sites with existing ComEd service, the Chicago-area electricity provider, is part of the infill approach. At the Joliet site, Prologis arranged an in-person meeting with ComEd on "Day 1" to ensure power was not diverted from the former casino, which he described as a major advantage.
Zemon does not foresee supply catching up with demand soon, given limited available land and deals that typically require land assemblages and complex entitlements. "We're not going to ever get back, in my opinion, to 20M SF or 30M SF under construction at one time. It's just too damn hard," he said. Even so, he expressed confidence that Prologis will remain active: "As long as there's good customer activity, we're going to continue to be bullish."
The company has built up its Chicago-area pipeline over recent months, acquiring sites in Glendale Heights and Minooka earlier this year. In late October, it entered a joint venture with Gaming & Leisure Properties to develop a 3.8M SF industrial park on the former Hollywood Casino Joliet site. According to Colliers, the amount of industrial space under construction in Chicago was 11.4M SF in the third quarter, compared with more than 37M SF at the Q3 2022 peak.
Zemon said Prologis' strategy is shaped by customer demand. The firm is targeting infill submarkets with high barriers to entry and building large properties with few comparable vacant, high-quality alternatives. Leasing activity has concentrated on tenants upgrading Class-B and C space, which supports continued rent growth on new development. That growth, Zemon said, offsets higher interest rates and cost of capital. He stressed selectivity, noting the company is not pursuing every opportunity and is focusing on submarkets where it has high conviction.
Power access is a central constraint. Zemon said redeveloping sites with existing ComEd service, the Chicago-area electricity provider, is part of the infill approach. At the Joliet site, Prologis arranged an in-person meeting with ComEd on "Day 1" to ensure power was not diverted from the former casino, which he described as a major advantage.
Zemon does not foresee supply catching up with demand soon, given limited available land and deals that typically require land assemblages and complex entitlements. "We're not going to ever get back, in my opinion, to 20M SF or 30M SF under construction at one time. It's just too damn hard," he said. Even so, he expressed confidence that Prologis will remain active: "As long as there's good customer activity, we're going to continue to be bullish."
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