Tenants Still Rule Space

December 8, 2006
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GRAND RAPIDS — As most building owners know, it’s still a tenant’s market when it comes to leasing at least 40,000 square feet of warehouse and distribution space in the metro area.

Happier days could be ahead for owners though, as S.J. Wisinski & Co. Vice President Stu Kingma said landlords had a better year this year than the two previous years, largely because third-party carriers have been more active in 2006.

“Most contracts are relatively limited in length and have bounced around between the third-party carriers on occasion, so we’re fielding a fair amount of interest from those folks,” said Kingma, who reports action in the area’s industrial market to the Society of Industrial and Office Realtors.

“We’ve had a lot of interest from those folks and we have secured some deals with them, quite frankly,” he added.

Most of that leasing has occurred in locations west of Grand Rapids

“We’ve seen demand in Holland. We’re experiencing some demand in Norton Shores, and I’ve got some additional demand that seems to be appearing on the northwest side of Grand Rapids in Walker,” he said.

Kingma said a potential third-party tenant mulls over the transportation costs, rental fees and logistics associated with a building in making a leasing decision. He said a firm based in Holland is probably going to want space there, as long as it won’t cost a company more to truck goods from a pick-up point to where the products will be stored. Otherwise, a firm will look for a site that keeps its trucking expense within reason.

And leasing, especially for the larger spaces, is still the contract of choice over buying a warehouse. Even sales of smaller buildings fell off this year from previous years.

“We haven’t seen a lot. That area for 2004 and 2005 was relatively active. But for 2006, that area seemed to slow down a little bit, at least in my experience, and that may not be a complete indication of the broader market. But that is the sense I get and that is what I’ve been hearing from others in the business,” said Kingma.

“We have, however, seen some larger buildings get sold. We recently closed on the former Leisure Life building on Broadmoor, which was 151,000 square feet, which for this market is considered a large building,” he added.

About 4.5 million square feet of larger warehousing space sits vacant in the region with most near Grand Rapids and Muskegon. Kingma said almost all of that space in Holland was filled, though.

But if a company needed 75,000 square feet, the firm wouldn’t have any trouble finding the space. In fact, Kingma said he could give this company 30 different sites to choose from in just about every sector of the metro area.

“If they want it southeast, I could provide it southeast. If they want it northwest, I could provide it northwest. In northeast Grand Rapids, there has historically never been much. Southwest Grand Rapids

76th Street
and
84th Street
— there is plenty of it available,” he said.

“I can put you in Holland; I can put you in Norton Shores. Pretty much wherever you would need 75,000 square feet, you’re going to have some options.”

About half of the market’s industrial space is considered warehousing space, with the rest dedicated to manufacturing, and research and development. And there is a good chance that the share of warehousing space will get a bit bigger in the coming years as some factories are being converted into other than industrial uses.

“A lot of the stuff that was included in that number was Steelcase properties, and a lot of that has been sold or is in the process of being sold. My expectation is that will not be reused for manufacturing. Just given that fact, it’s starting to tilt to the warehousing side,” said Kingma.

Kingma said he saw a slow improvement in the warehouse and distribution market for next year, even though others have told him they weren’t sure of what 2007 holds. He added, though, that the market uncertainty others have expressed to him has been the same message he has heard them voice for the past few years.

“But I expect the absorption rate that we experienced throughout 2006 to hopefully continue into 2007,” he said. “I see nothing on the horizon to change that at this point.”    

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