1st ANNUAL STATE OF DUPAGE COUNTY & WESTERN SUBURBS CRE MARKET

The 1st Annual State of DuPage County & Western Suburbs CRE Market was recently held on February 13 at PowerForward DuPage. This event brings together business owners and decision makers in DuPage County to discuss important business issues and trends. Topics that were covered include the state of office, industrial, retail, multifamily, and senior housing, development, investment, capital markets, and data centers.

Karyn Charvat, Executive Director of PowerForward DuPage, opened the breakfast and networking event with a welcome message and warm introduction of DuPage County Board Chairman Dan Cronin.

Keynote: Greg Bedalov, President & CEO, Choose DuPage (To read the keynote address, click here)

Panel One: State of Office, Industrial, Retail, Multifamily, Senior Housing

  • Christine Jeffries, Moderator, President, Naperville Development Partnership
  • Steve Chirico, Mayor, City of Naperville
  • Ron Lunt, Partner, Hamilton Partners
  • Bryan Gay, President & CEO, Invest Aurora
  • Mari Rodriguez, Operations Manager, DynaCom Management, Inc.
  • Jim Adler, Executive Vice President, NAI Hiffman

 

Panel Two: Development, Investment, Capital Markets, Date Centers

  • Michael Cassa, Moderator, President & CEO, Downers Grove Economic Development Corporation
  • Greg Bedalov, President & CEO, Choose DuPage
  • Sean Reynolds, Managing Director, JLL
  • Anna Maria Kowalik, SVP, Director of Business Development, The Illinois Energy Conservation Authority NFP
  • Steve Caton, CCIM, CIPS, Principal, Investment Broker, Caton Commercial real Estate Group
  • Kevin Kobe, Associate, Investment Properties, CBRE

 

 

Keynote Address

Greg Bedalov, President & CEO, Choose DuPage

Good morning everyone. Thanks for that kind introduction, Karyn. Thanks as well to PowerForward DuPage and the Real Estate Journal for hosting today’s event. Thanks to all the sponsors here today and most importantly, thanks to all the businesses that have joined us. Whether your business is based in DuPage County or not, chances are you conduct some of your business in DuPage, and we thank you for that.

I know we have a full agenda and some excellent panels lined up, with some really smart people, so I’ll do my best to keep my remarks brief.

To understand the full economic environment in DuPage, we need to look at our economic indicators, our current financial health, the great assets we have in DuPage, and future infrastructure growth. This morning, I’d like to briefly take you through that.

Unemployment rates are at record lows in DuPage County, at or near 2.5%. Great news, right?

The number of new businesses in DuPage increased by 7% in 2019, and now totals more than 95,000 unique and diverse businesses.

More great news, right? Both of these key economic indicators are out pacing our county friends throughout Northern Illinois, the state and in some cases, the nation.

But opportunity doesn’t come without challenges. Illinois is currently at a net loss of people – otherwise known as outward migration – and has been for some time. DuPage County bucked this trend and added people to our population last year. Not as many as we would like, but nonetheless, we saw population growth.

DuPage also has a cost of living index at 111% of the national average. This drives purchasing power down. Now fortunately, some of this is offset by higher average salaries but nonetheless it’s a challenge to economic growth.

That’s why I believe it’s so important to maintain the lowest possible cost of doing business, and I’ll touch on that in a minute.

But back to employment. Low unemployment rates, more businesses opening year over year and moderate to sub-standard population equals a difficult time filling many of the job openings in the region.

In the past, you may have heard of a shortage of nurses or perhaps engineers. Today, we are hearing from businesses that there is a shortage of candidates across a multitude of spectrums.

This slide shows where we are seeing the most job opportunities. I won’t read it, but you’ll note that registered nurses are still in great demand. As are computer support specialists, as well as general maintenance workers. So, you see, it’s a broad spectrum. 

Top Job Opportunities

I don’t want to say it’s a good problem to have. I know that our friends in workforce development and on the workforce boards are diligently training and certifying people to help address these opportunities.

But lower unemployment, coupled with outward migration means it going be more difficult than ever to fill these labor needs.  We simply need population growth in the region and we need focused marketing and retention efforts for labor in DuPage. Choose DuPage will be unveiling a marketing and labor attraction and retention plan focused exclusively on DuPage County businesses in the next month or so. More about that later.

Overall, our economic conditions are still strong.

Let’s see what our largest industry segments are in DuPage right now, and what they may look like in the future.

Employment by Industry

No surprise for anyone familiar with DuPage County – we continue to enjoy a strong presence in Healthcare and Professional Services. Both industries support strong average salaries, and both industries are projected to grow. 

But take a look at retail and manufacturing. Retail is obviously the 600-pound gorilla in the room. Retail sales tax funds a good portion of county government and local government. And while the county sales tax collected grew last year, it’s an industry that is rapidly changing.

Online competition has forced many retailers to reduce their brick-and-mortar presence. U.S. retailers announced more than 9,200 store closures in 2019, compared with 5,844 closures in 2018. Macy’s recently disclosed plans to close 125 department stores—almost a quarter of its entire portfolio!

Tomorrow is Valentine’s Day. How many of us will buy flowers with the touch of a button or the click of a mouse vs visiting our favorite florist.

In one analysis of potential retail growth in 50 major U.S. metro areas the Chicago market ranked 47th—below Cleveland, Detroit and Baltimore—forecasting that a key growth metric accounting for occupancy and rent would decline 2.7 percent from 2020 to 2024.

Some of the retailers that announced store closures in 2019:

  • Sears and Kmart
  • Walgreens
  • Dress Barn
  • Charming Charlie
  • Payless
  • GameStop
  • GNC
  • Barneys New York
  • Charlotte Russe
  • Forever 21
  • Gymboree
  • Pier 1
  • JC Penny
  • Victoria’s Secret
  • Gap
  • Chico’s
  • Party City
  • Bed Bath & Beyond
  • CVS

Most of these retailers had or have a physical presence in DuPage. And now retailers are fighting back. Brick and mortar is becoming more experiential. You can have dinner at Crate and Barrel. Who would have thought that ten years ago? 

But the simple fact is, traditional retailers will continue to close. And shopping malls, strip malls and outlets will be forced to look for new, non-retail clients, as the way we shop for goods continues to evolve.

Last year, online purchasing accounted for roughly 12% of retail sales—up from about half of that in 2010. And by 2030, that number could jump to 32%—a THIRD of all U.S. retail sales.

In fact, U.S. consumers will get 8.6 billion packages delivered this year. As e-commerce growth continues with no signs of tapering off, the profound dependency on logistics and industry developments to support this boom is all the more apparent.

This is where you typically hear the speaker ask how many packages were delivered to your house yesterday. Well based on the total number of packages delivered annually and the total number people in the U.S., every man, woman and child in the U.S. will get 25 packages delivered to next year. I know what your all thinking and you’re right, you’ve all received that many packages already this year, maybe even this month, some even this week. The point is, the numbers are incredible.

And because today’s customers expect near-immediate delivery, warehousing is being developed closer to population centers than ever before. We’ve seen a lot of that in DuPage, including Bridge Development, shown here in Downers Grove. And we expect to see more of that in the future. It is a simple economic reality. Until of course, drones start delivering packages.

Automation is dramatically changing the face of the industrial workforce. By 2025, it’s expected that 10-15% of all manufacturing, transportation and storage, and retail jobs may be replaced by automation. Boy, I’m just full of good new aren’t I?

This is driving the need for upskilling, at the very time there is a decreasing and aging workforce. Employers need industrial and warehouse space that will attract employees and encourage them to stay –this may include on-site amenities, nearby restaurants and the like. But again, the economy is figuring this out and adapting.

An example of industrial and retail coexisting like this is near DuPage County. CA Industrial recently broke ground on CA Elk Grove, a 150,000 square-foot speculative Class-A warehouse in Elk Grove Village.

The new warehouse is being built on the majority of an existing retail center, with a portion – 7,800 sq. ft. – remaining as retail and restaurants. A warehouse with retail? OMG, we aren’t in Kansas anymore, Toto. Congrats to Elk Grove and their team for this entrepreneurial play.

The developer is placing a greater emphasis on workplace environment, creating a space that will help their tenants attract and retain employees.

Choose DuPage has traditionally not played in the retail space. But as data centers, fitness centers and other non-retail, sales-tax generating entities start to become viable options for these malls, clearly our focus has shifted and will continue to do so.

And finally manufacturing. Again, a major player in the DuPage economy that is projected to contract slightly, primarily due to a shortage of skilled labor coupled with land prices that are 25% higher or more than our neighbors to the West. We really can’t say enough about labor, can we?

So, what else do we measure to chart economic trends? Obviously, vacancy rates. And these slides should come as no surprise to anyone in this room.

Office Real Estate Report

Class A office vacancy rates are much higher than any of us would like. I’ll come back to this one in a second.

Industrial vacancy rates have been consistently low with a recent slight uptick. Transportation, distribution, warehousing and logistics vacancy rates (not your traditional manufacturing) are also low. And with new buildings coming on the market, that space is rapidly becoming a growth market for DuPage.

Industrial Real Estate Report

It’s really weird when you hear developers tell you that their office buildings would be worth more as a distribution center.

But what really keeps me up at night is the Class-A office vacancy rate. This slide shows the number of office buildings built in DuPage in the last decade. Clearly our building boom was in the 80’s. It can be again but first we have to have demand and fill vacant space.

Number of Office Buildings Built

In my office complex on Warrenville Road, there is over 300,000 square feet of vacant office space. Again, a challenge and an opportunity.

This Spring, Choose DuPage is launching a marketing campaign aimed at recruiting and retaining workforce, while changing the perceptions of our County… this is not your father’s Oldsmobile!

The campaign is designed to showcase the inherent advantages of DuPage County, while helping businesses with the highest demand for workforce recruit and retain the talent they need in order to grow. 

We all know that the collar counties have had their recent share of blows with respect to major corporations moving out. From McDonald’s to Ferrara Pan to Walgreens, no county is immune. These moves sting. There’s no denying it.

But what defines us, and the future prosperity of our region, is what we do about it… What we do to avoid companies from moving out in the future. And how we use information – actual, factual information, to shape the message we want people to hear about DuPage County.

We know we have a competitive rental price advantage for Class A space in DuPage. We know we have a competitive tax advantage for space in DuPage. We know our numbers are still strong but we want them stronger and we at Choose DuPage, a combination of re-purposed buildings, a talented workforce that knows of the opportunities in DuPage and a government that continues to provide, reliable and predictable services will be the keys.

Here is the reality in DuPage….

First, we saw a 7% increase in the number of new businesses last year. That’s a simple fact. Our employment base grew. 

Second, we are seeing more and more investment to modernize buildings and keep them relevant as the amenities race continues.

The Shuman in Naperville and 700 Commerce in Oakbrook are as cool as any building I’ve seen downtown Chicago, and it’s just a fraction of the transformation that we see, and must continue to see, in order to grow. What I talked about earlier is happening. It’s awesome. Please keep it going.

Third, we are innovating in DuPage. Take a look at Innovation DuPage. Born from Choose DuPage and now in partnership with the College of DuPage, Innovation DuPage is working with businesses large and small on emerging technologies and growth strategies. 

They are also working with HACIA, the Hispanic American Construction Industry Association to help minority-owned businesses prosper in DuPage.

The role of Innovation DuPage in our economy will continue to grow as more businesses get involved.

And don’t forget the Western Access O’Hare project. One that I have great familiarity with, and great passion for—127 square miles of opportunity that exists within the connection of I-90 and I-294.

Opportunity perhaps, for the kind of development I mentioned earlier where tech and industry live together. Or office and residential. Or even multi-family and data centers. An opportunity where access to O’Hare Field from the west, from DuPage County, is finally achieved. 

This project is an investment in infrastructure that would not be possible without good governance. That’s why it’s essential for DuPage County to maintain its triple A bond rating. And why it’s essential for DuPage County to continue to support business by being efficient and transparent, just as it is now.

I mentioned earlier the importance of shaping the message we want people to hear about DuPage County. At Choose DuPage, we call this the DuPage Difference.

Hopefully, most of you here today realize this difference.

You know that DuPage provides access to three international airports. That’s right, I said three. The DuPage County Airport is an international airport.

We also have 7 major interstates, and not just one but TWO national laboratories. Argonne and Fermi serve as economic engines to businesses, both large and small.

Sorry, but I’m going to continue to bang this drum.  We can’t talk about it enough.  We have the workforce for tomorrow in DuPage County today.  We are going to a better job reaching them and telling them about the DuPage Difference.

DuPage County has the highest educational attainment in the state with more than half of our residents having a bachelor’s degree and one in 5 having a post-secondary degree.

We have a wonderfully friendly business environment with comparatively low taxes and a balanced budget. 

And we all know about the great quality of life, great schools, including 19 accredited colleges and universities, and wonderful parks and open spaces.

And, from an economic development perspective, perhaps most important— a strong, diverse economy where no single market sector represents more than 10% of overall economy.

These are the inherent advantages that make DuPage County a premier global business location. But more than that, DuPage County is our home.

And if we maintain these advantages, evolve for future industry, and continue to collaborate and support business—then our workforce will continue to excel, businesses will flourish, and our economy will continue to thrive.

Thank you.