Warehouse Overflow Is Forecast

December 15, 2003
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GRAND RAPIDS — Warehouse and distribution easily had the highest vacancy rate of the four industrial real estate sectors this year.

In terms of percentages, the sector had more than three times the empty space than the overall market did early this year.

But that situation may change in the near future, as a slow but steady climb has been predicted for the segment.

At the start of the year, the warehouse and distribution sector had a vacancy rate of just under 20 percent, according to the Grubb & Ellis/Paramount 2003 Real Estate Forecast, while the entire industrial market began the year with a 6 percent vacancy.

In fact, warehouses had 43 percent of the industrial market’s 6.2 million vacant square feet last January.

If the warehouse segment were removed from the industrial inventory, the market’s vacancy rate would fall from 6 percent to 3.9 percent.

Factory layoffs and plant closings have made storage space less necessary, because when manufacturing declines, warehouses are the first to close.

Add in a distribution system that revolves around just-in-time deliveries and you have another big reason not to store goods.

Grubb & Ellis/Paramount CEO Duke Suwyn said the warehouse segment has remained flat for much of this year. Some properties were filled, while others went vacant.

“The warehouse-distribution market is particularly a lease market and we are seeing some increased activity on the leasing side,” said Suwyn.

“We have some space coming available because companies have acquired larger facilities or they’re building new facilities that fill special needs. And we are still in the process of converting large industrial boxes that were manufacturing facilities into the warehouse-distribution market,” he added.

An example is the former Lifesavers plant in Holland.

Suwyn felt that from half to all of that building could be turned into warehousing space, depending on future tenants.

“We’re in a state of flux and, yet, I think these large industrial manufacturing buildings are going to be converted into a warehouse-type use,” he said.

A conversion would translate into a new supply of warehousing space in the market, but not by new construction.

Up to 900,000 square feet will be available when Bosch closes the former Steelcase Inc. plant at Broadmoor and 44th Street soon.

“I expect that a large component of it will be manufacturing. Our dream is that it will all be manufacturing. But at the end of the day, I can see somebody taking a couple hundred thousand feet in there of distribution-warehouse,” said Suwyn.

Suwyn also felt it was very unlikely that many of the current empty warehouses would be renovated for commercial and residential uses. How come?

Because most of them, he said, are in the middle of nowhere and near nothing.

Older, multi-storied warehouses that are situated in cities — especially those that are close to downtowns — reportedly are more likely to be converted into offices, shops and apartments. Some newer, but smaller, warehouses that have been squeezed out of manufacturing by suburban residential developments are also being turned into other uses.

But not converting warehouse space into something else may turn out to be a good thing in the short term.

Suwyn said the recent jobless recovery in manufacturing has led to new warehouse space being built in other parts of the country. He also said the popular belief that higher productivity results in less manufacturing space was wrong.

“In fact, as the manufacturing employment nationally has dropped over the last 20 years, the manufacturing capacity square footage has actually increased,” said Suwyn.

“Even though we may not see the jobs, we expect to see manufacturing occupancy increase.”

A portion of any increased occupancy, of course, is bound to find its way into the warehousing segment. Another indicator that should signal a revival for the sector is that manufacturing inventories currently are at an all-time low.

“Every time you have inventories at an all-time low, that is immediately followed by a strong manufacturing sector. Where we see the growth right now is in the typical West Michigan privately-held entrepreneurial companies that are very, very active,” said Suwyn.

“For the last four months, it has been like a light switch was turned on.

“It started with the smaller spaces and it’s starting to work its way up. It’s going to be a long time accelerating, but we’re seeing it.”

The latest vacancy figures for the entire industrial market, along with the office, retail and investment markets, will be available next month when Grubb & Ellis/Paramount releases its 2004 forecast.

The firm will debut the numbers and predictions at a breakfast meeting set for Jan. 21 in the Loosemore Auditorium on the downtown GVSU campus.    

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