At the dawn of the 20th century, industry came to the Lake Michigan lakeshore and forever transformed Northwest Indiana.
Steel mills, refineries and other major industrial operations drew waves of immigrants from the world over to what had largely been marshland that was swampy in the summer and frigid in the harsh, unforgiving winters.
But Northwest Indiana is undergoing another major building boom.
More than 2.4 million square feet of new industrial buildings have been built in Northwest Indiana over the past year. New warehouses and business parks have risen up along Interstate 65 in Hobart, Merrillville, Crown Point and Lowell.
"At no time has Northwest Indiana had so much speculative Industrial property delivered to the market in this short of a period," Latitude Commercial President and Co-Founder Aaron McDemott said in the commercial real estate firm's annual report.
Crow Holdings has built three speculative buildings of 1.38 million square feet, 576,000 square feet and 260,000 square feet at the Silos at Sanders Farm in Merrillville.
"Because of the delivery of those spaces alone, we have seen vacancy rates rise significantly from 6.3% up to 9.25% at the start of 2024," he said in the annual report. "Normally when you see vacancy rates climb so significantly you would see a pullback in asking rents. However, rates continued to rise from $7.28 per square foot at the beginning of 2023 to $7.61 per square foot to the start of 2024."
Massive cold storage warehouses also are under construction. U.S. Cold Storage is building a 245,000-square-foot warehouse off I-65 in Lowell and Core X Partners are broke ground on a new 450,000-square-foot warehouse in Crown Point.
The industrial leasing market has been strong with months on market at a five-year low. Industrial space was on the market for an average of 5.8 months at the beginning of 2023 and for 7.7 months by year's end as more inventory came online.
That's a dramatic improvement over 2021 when the average months on market reached 18.6 months for industrial space.
While the industrial rental market has been booming in Northwest Indiana, but the inventory remains low for businesses looking to buy.
"While the market has been strong for available properties for lease, owner-users were still struggling to find available properties to purchase in 2023," McDermott said. "We went from a sales volume of 91.9 million square feet sold in 2022 to only 51.4 million in 2023, a dramatic decrease of 44%. With little new inventory of owner-user parks or buildings projected in 2024, we should continue to see the trend of little volume with increasing pricing throughout 2024."
The office and commercial markets have not been as result due in part to high interest rates and the work-from-home trend. Inflation shrunk from 9% in 2022 to 3.4% in December but the high interest rates reining it in made it harder and more expensive to finance projects.
"Even with the Amazon effect taking its toll on retailers, our market continues to flourish," McDermott said. "Strong migration into Northwest Indiana and low inventory again helped retail landlords with low vacancy rates and rising market asking rents. Vacancy rates at the end of 2023 were up marginally from 4% to just under 4.2%, while market rents increased from an average of $16.97 to $17.40."
Commercial sales volume fell 18% from $122.9 million in 2022 to just over $100 million last year. But demand remained strong.
"However, the price per square foot continued to increase from $145 per square foot at the end of 2022 to $150 per square foot at the end of 2023," he said. "We see the trend of increasing rates to continue due to the lack of new product, the high demand for retail property, and the high cost of construction in 2024."
The office market has held up in Northwest Indiana as well.
"Despite the national rhetoric of office being the black sheep of commercial asset classes, our market remains very strong. There has been a white-collar exodus from major markets like Chicago that still has not fully taken effect," McDermott said. "Suburbs of Chicago, like our area, are the beneficiaries of the work-from-home trend. Employers still want their employees in the office and may start to find smaller regional offices outside of the major central business districts."
A Cushman Wakefield report found 3.5 million square feet more of office space went onto the market last year. That was an improvement from 19 million square feet the previous year but the vacancy rate was still 23.5%.
"Meanwhile in Northwest Indiana, office vacancy rates remain low ending the year at 5.6% overall. That was up from a low of 4.5% in the first quarter but market asking rates continue to grow," he said. "Sales volume for office space was incredibly low which also saw market sale price per square foot drop significantly. While at first glance this could be worrisome as we saw pricing fall to near 2019 levels, but I believe this is due to the low inventory of higher-class properties for sale."
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