The COVID-19 pandemic hit the economy hard, but one growing industry in the South Bend area — warehousing and logistics — shows little sign of slowing down, as consumer habits and changing supply-chain needs fuel millions of square feet in new development.
When Amazon opened a South Bend delivery center in a shared 210,000-square-foot space in 2019, the e-commerce giant’s presence underscored a warehouse-building boom at the city’s industrialized northwest edge, near Interstate 80/90 and U.S. 31.
Since then, builders have raised at least three more distribution centers, totaling more than 600,000 square feet, and more are on the way.
South Bend-based Holladay Properties filed a rezoning request this month to build a complex that, according to the company, could include multiple buildings and up to 800,000 square feet on Old Cleveland Road, just outside the city limits and west of the 80/90 interchange.
The proposal shows developers are still betting on local growth in warehousing and logistics, a bullish stance they attribute to several reasons.
They say the pandemic and resulting economic downturn slowed down the global supply chain and drove home the need for companies to strategically place warehouses for quick access to goods. At the same time, e-commerce and consumer demands for fast delivery has made speed more important than ever.
“It’s actually been a pretty good year for warehousing and logistics operations,” said Paul Phair, vice president at Holladay. “2020 did not have the negative impact that some other industries saw, because there was a lot more e-commerce that was taking place from consumers. That’s an area that has been growing in our market and we think will continue to grow going forward.”
Economic-development officials say South Bend is well-suited for distribution because of its access to major highways and its location within a day’s drive of big population centers like Chicago, Detroit, Indianapolis, Cleveland and Cincinnati.
At the same time, a tight industrial real estate market in St. Joseph County is making space hard to come by and driving the recent construction frenzy.
Jeremy McClements, an industrial real estate broker and vice president at Bradley Co., said St. Joseph County has only about 45 million square feet of industrial space compared with 85 million in Elkhart County. Of the usable space in St. Joseph County, only about 5% is vacant, he said.
“There’s demand for space and there’s not any space to supply it,” McClements said, “so something’s got to give.”
Experts say consumer appetites have helped drive growth in logistics and distribution, as companies look for ways to fill orders faster.
“Businesses recognize that consumer needs have changed,” said Jeff Rea, president of the South Bend Regional Chamber of Commerce. “With the growth of e-commerce, you really need a well-oiled supply chain, so companies are looking at more facilities spread out to fulfill that need.”
Amazon’s decision to place a center in South Bend illustrates how companies are using “last-mile” facilities to rush next-day or even same-day deliveries to customers.
At the same time, the global economic slowdown from the coronavirus showed other types of companies they may need more localized supply-chain hubs. When some companies went back online after COVID-related shutdowns, they faced delays in getting imported materials, McClements said.
Calculated risk
The proposed Holladay project on Old Cleveland would be the latest in a string of speculative, or “spec,” developments in the area.
The idea behind a spec building is, essentially, “if you build it, they will come.” Companies such as Holladay and Great Lakes Capital put up the multipurpose shell buildings with no tenants lined up, banking on the likelihood a user will appear.
Developers say the spec buildings are attractive to users because the developer takes care of the lengthy permitting, zoning and construction process, allowing the tenant to be up and running soon after signing a lease.
Some critics have questioned the practice of rezoning farm or residential land for a spec building with no clear end user, Rea said. But he said “time is money,” and many companies now want space available to move into on very short notice.
“Oftentimes, residents have said, ‘wait until we have a tenant and we can go from there,’” Rea said. “That’s not how business is done in this day and age.”
Since 2016, Great Lakes has put up at least three spec buildings in the area, and Holladay’s proposal on Old Cleveland would be its second. Users in the buildings so far include Amazon, AM General, ThyssenKrupp and Polywood.
Phair, with Holladay, said the Old Cleveland project would likely start with a 250,000-square-foot building, and potentially expand to two more on the 52-acre property. St. Joseph County’s Area Plan Commission has yet to hear Holladay’s request to rezone the property from residential to industrial use. Though the proposal is geared toward warehousing, it could also accommodate light manufacturing, Phair said.
Bradley Co. is working on finding a tenant for Great Lakes’ most recent project, a 165,000-square-foot building on Dylan Drive, north of Adams Road in the Ameriplex park.
Once Great Lakes leases out the latest spec building, the company expects to start building another similar one right away, said Jeff Smoke, a partner and managing director.
Great Lakes’ newest building has taken “a little bit longer” to lease than the previous spec warehouses, Smoke said. And such multimillion-dollar bets come with plenty of risk. But so far, the developers are happy with the results, and with space still tight, they don’t plan to stop anytime soon.
“Every investment is a calculated risk,” Smoke said, “and given there’s zero vacancy in the market for a product like ours, we feel comfortable with that risk.”
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