Taming The Industrial Market

July 25, 2005
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The industrial real estate market is changing.

Where factories and warehouses once stood, there are now offices and condominiums, sometimes in the same buildings where goods were once manufactured and stored.

Though the industrial real estate market is picking up slightly from where it was a few years ago, there is still an abundance of large sites and undeveloped land, some of which are being rezoned to accommodate the growing need for more retail and residential space.

Brian Silvernail, chairman of Grand Rapids Real Estate, said that while he is selling some undeveloped industrial land, the majority of it is not for industrial development.

One of his notable sales recently, for example, was for a casino development. In the case of an entertainment facility such as this, Silvernail said that the surrounding land also would be considered in a different light, supporting tourism rather than industry.

Silvernail said many of the lots he has sold over the past few years have remained zoned as industrial but include retail components, such as automotive and recreational vehicle dealerships. These are able to remain in an industrial zone because less than 10 percent of the floor space is retail. The majority of their merchandise is displayed outside the facility. The draw of these lots has been the proximity to the highway, which allows for a long view of the products as potential buyers drive by. Silvernail said that, in one particular location, of the 12 lots that were sold, seven were due to visibility from the freeway.

“They weren’t for manufacturing, they weren’t for warehouses; they’re for quasi-businesses,” he said.

The future of industrial land is in adapting and changing to accommodate a growing need for retail space, Silvernail said. Buyers may pay two to three times as much for retail land as for industrial land, he said.

“That’s the reason why they can afford to buy warehouses and level them,” he said.

One example of the changing use of industrial space is the former Ampro factory site in Wayland, which Silvernail sold to the Match-E-Be-Nash-She-Wish Band of Pottawatomi, commonly known as the Gun Lake Tribe, to be used as a casino and entertainment complex. Though the land will not be used for industrial development, it has not been rezoned, because it was given to the tribe in trust from the government. Because of the casino development, the land surrounding the property is being viewed in a different light.

“No one is looking at that as industrial any more,” he said.

Instead of the industries that were once supported in this area, Silvernail said the land will most likely be used more for tourism or retail uses to complement the casino.

In other areas, industrial land and buildings also are being used as retail or residential.

“I think we’re going to see a lot more creative stuff being done with these big, older industrial buildings,” he said.

Industrial sites have gone down in price because there is less demand, Silvernail said. This is difficult for sellers to understand when just a few years ago their property could have been sold for twice what it can now, he said.

“It’s not a real rosy picture,” he said.

Owners wishing to sell or lease must cater to buyers and tenants with an eye for a bargain, and properties — both undeveloped and developed — that have been sitting vacant may shift from industrial to retail.

With many buildings and lots available for lease or sale, Stu Kingma, vice president of S.J. Wisinski & Co., said the smaller spaces — less than 50,000 square feet — have been selling, while the 50,000- to 100,000-square-foot spaces have been languishing on the market.

“There was an overabundance and continues to be an overabundance in that type of space, and it continues to be a tenant’s market in that regard,” he said.

Though Kingma said activity has been increasing over the last 60 to 120 days, it is not back to the level of three or four years ago.

“I think we’re just lagging, but I think we’re picking up steam,” he said. “It’s good to see some local companies doing better.”

Randy Bronkema, also a vice president at S.J. Wisinski, said there are some local industries that are expanding, which helps to take up the smaller industrial spaces.

“There are some companies that are growing and are strong and are moving because they need more room,” he said. “There’s a little bit of slowness out there but there are some companies that are growing and moving.”

With the amount of space available for sale or lease, Bronkema said there is a lot of competition, which is a benefit for buyers.

“Some owners are just getting a little tired of sitting on their vacant buildings,” he said.

Because of the many properties on the market, Bronkema said buyers are looking for the best deal — and getting it.

“They have been negotiating pretty hard and have been successful in getting some pretty good deals,” he said.

Bronkema said he thinks the market is going to stay the same for the rest of the year, with new space becoming available as the current listings are bought.

“Tenants looking for space will probably have more choices,” he said. “They just need to adapt to a marketplace that has an overabundance of properties.”    

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