Ranked as the largest metropolitan statistical area (MSA) in the country by Herm Isenstein, president of DISC Corp., Orange, Conn., the Chicago MSA in 2008 is forecast to have total electrical wholesale sales of $3.6 billion, down 3.4 percent from the previous year. The distributor-served contractor market is expected to decline by 5.5 percent this year, according to DISC Corp.'s latest projection for this market segment. The distributor-served industrial market is expected to be off by 1.8 percent this year.
“Chicago is a huge market, and despite the downturn there are multiple opportunities to hold and even gain share,” said Isenstein. “There are many competitors in the Chicago metropolitan area, running the gamut from strong operators to weak operators. Under soft market conditions the weaker competitors are at greater risk to lose share to the stronger businesses.”
“Chicagoland” covers a 150-mile radius that borders Wisconsin to the north, Indiana to the south, DeKalb to the west and Lake Michigan to the east. “It's a compact, densely populated territory, and approximately 70 percent of the market is concentrated in three counties — Cook, which is where Chicago is, DuPage to the west and Lake County, which is north,” says David Rosenstein, president of ConneXion, formerly Classic Electric Supply, Forest Park, Ill.
Most electrical distributors in Chicagoland, NEMRA reps, contractors and engineering firms in the market cover all three counties, says Dennis McDonald, president, McDonald Associates Inc., a manufacturers' rep in Rolling Meadows, Ill.
Chicago's office-vacancy rate, which typically has been higher than the national average, has improved in recent years. At 13.9 percent, the central business district's vacancy rate is at its lowest level since the fourth quarter of 2001. Large and small tenants are expanding, 4 million square feet of Class A office space is under construction and largely preleased, and more tenants are moving or considering relocation from the suburbs to downtown, according to Grubb & Ellis' report for the fourth quarter of 2007. Law firms and other financial and professional-service companies continue to lead the demand. Big names in the market include insurance brokerage giant Marsh & McLennan Companies, law firm Baker & McKenzie LLP and accounting firm Ernst & Young LLP.
“Right now, the downtown market still has several cranes in the air, primarily in high- and mid-rise residential projects,” said David Rosenstein of ConneXion. “But I think residential projects are in the process of transitioning from condominiums to rentals. The current inventory of unsold condominiums is sitting at about 6,000 units.”
Some high-profile downtown projects include the Chicago Spire, a 150-floor twisting spire that will be taller than Chicago's Sears Tower. The building was designed by Spanish architect Santiago Calatrava and is being developed by Garrett Kelleher of Shelbourne Development Group Inc. The Chicago Spire is scheduled to be completed in 2011.
Not far from the well-known Wrigley Building, 92-story Trump International Hotel & Tower is being built where the seven-story Chicago Sun-Times building once sat. It's expected to be completed in 2009. Another downtown project is the Elysian, a 60-story skyscraper in the Gold Coast region in Chicago. The building will have 188 luxury hotel suites and 51 private condominiums available for private ownership. Two restaurants will be in the hotel.
Adjacent to the McCormick Place convention center, Alter Group Ltd., a Skokie-based developer, agreed in December 2007 to pay $70 million for a 3.7-acre parcel on East 22nd Street across from the newly built McCormick Place West building. The developer is looking at building a hotel with 1,500 rooms and more than 100,000 square feet of meeting and ballroom space.
“I think the downtown market has expanded greatly with a lot of new commercial office buildings, high-rise condominiums, hotels and a tremendous amount of additional convention space as well,” says Rosenstein, who has spent 24 years in the Chicago market. He believes the city has benefited by having long-term mayor Richard Daley, who has national prominence and a lot of political power, not only locally, but also nationally. Daley's brother, Bill, was tied in with Clinton and Gore. “I think that has benefited Chicago tremendously,” he says. At projects like Museum Park, Rosenstein's company is providing everything from switchgear to distribution equipment to lighting, he says.
The East Loop has the highest vacancy rate of all downtown submarkets with 15.7 percent, according to the Grubb & Ellis fourth-quarter report. It will be hit even harder when Kirkland Ellis leaves behind more than 500,000 square feet as a result of the company's move to 300 North LaSalle. The West Loop leads the charge in terms of growth, followed by the Central Loop, says Rosenstein. He says outside downtown Chicago, there are suburban markets that continue to grow and that while Lake County is attractive because of the lower tax base, not much land is available.
Out in the suburbs and farmlands
Bill Casey of Bill Casey Electric Sales Inc., Bensenville, Ill., a manufacturers' rep that has covered the Chicago market for 37 years, says the western suburbs have been growing, as residential construction has expanded out to the Fox River. Naperville has always been strong in that area, too, he says. Casey believes the area along the corridor 55 will also continue to grow.
Some large data-centers are also being built in the Chicago area. In late December 2007, DuPont Fabros Technology Inc. obtained a $148.9 million construction loan for the first phase of its new facility in Elk Grove Village. That phase is expected to be completed this year and will include about 211,000 square feet of rentable space. Equinix Inc., a rival of DuPont Fabros, opened a 228,000-square-foot data center in Elk Grove Village in October.
Outside the Chicago metropolitan area, corn commodities have done well and there is a lot of farm equipment that is being sold throughout the state, says Casey. “There is a Toyota plant going on in southern Indiana, and some wind farms in Illinois.”
The housing downturn has rippled through the local economy in Chicago, hitting homebuilders like Neumann Homes Inc., which filed for Chapter 11 bankruptcy protection in November 2007, and Kennedy Homes, South Barrington, which recently laid off 20 of its 32 employees. Kennedy Homes generated $214 million in sales in 2006 and was the area's 11th-largest homebuilder, according to a listing of developers by Crain's Chicago Business.
The electrical distribution market
The electrical distribution market has been relatively stable in terms of the players in the market, says Rosenstein, who before forming ConneXion was president of Brook Electrical Distribution Co./Sonepar USA. “The market is still relatively fragmented with multiple distribution models and both independent and national players,” he says. “The reason for a fragmented market is that the customers are still very fragmented. The biggest player probably has 20 percent share or less.”
On the commercial/industrial side of the business, Casey sees Steiner Electric, Brook Electrical Supply and Graybar as probably the three dominant players. Crescent is doing well in Chicago too, he said.
Casey says the Midwest lost 200,000 to 300,000 manufacturing jobs over the last six or seven years, but he believes some of them have started to come back in the last year and a half.
“I think the devaluation between the dollar and the Canadian dollar has helped that,” he says. “Some of the manufacturing companies around the Midwest are going to see a bit of a boom.”
“I think 2008 is going to be a tough but manageable year, and on the commercial side we could expect some slight growth,” says Rosenstein. “While it's a tough market, it's a large market and our goal is to gain market share. That's what we're trying to do.”
He believes Chicago should generate 30,000 to 40,000 jobs over the next couple of years and has a chance to really grow if it's awarded the 2016 Olympics.
Chicago by the Numbers
2008 sales through electrical distributors
The Chicago MSA is forecast to have total electrical wholesale sales of $3.6 billion, down 3.4 percent from the previous year, according to forecast data provided by DISC Corp., Orange, Conn., www.disccorp.com.
Total building permits year-to-date through January 2008 for the Chicago-Naperville-Joliet MSA are down 49 percent.
Major construction projects underway
One of the biggest projects is the Chicago Spire, a 150-floor skyscraper that will be taller than Chicago's Sears Tower. The building was designed by wSpanish architect Santiago Calatrava and is being developed by Garrett Kelleher of Shelbourne Development Group Inc. The Chicago Spire is scheduled to be completed in 2011.