Area Industrial Property Market Improving
GRAND RAPIDS — The Greater Grand Rapids industrial property market strengthened during the fourth quarter of 2007, to close out the year with a total positive absorption of almost 1.3 million square feet of vacant space, according to a report from Grubb & Ellis|Paramount Commerce.
The report, prepared by G&E|PC research analyst Gary Albrecht, indicated that the fourth quarter vacancy rate was 8.8 percent, compared to 9.8 percent in the fourth quarter of 2006.
While demand for large, owner-occupied space remained level, Albrecht noted that demand for facilities with less than 25,000 square feet increased during the second half of the year.
There was an increase in shorter term leases in the second half of 2007. As a result, rates for short-term and long-term leases have become nearly identical, according to Albrecht.
“The fourth quarter was the most active quarter for user sales in 2007, which indicates a renewed trend toward users purchasing instead of leasing as interest rates continue to decline,” Albrecht noted. “In the coming year, we expect to see continued demand for smaller spaces, along with continued interest from non-Michigan companies.
“Building on the successes of 2007, we anticipate that the industrial market in our region will show steady improvement. West Michigan is home to an educated work force, strong work ethic and desirable properties that make us an attractive destination for outside investors, particularly those from higher-priced markets.”
The G&E|PC report also noted that four of the five submarkets within Greater Grand Rapids ended the year with positive net absorption of vacant industrial property, which refers to a change in space becoming physically occupied. Albrecht said the one submarket area that showed an increase in industrial property vacancy was the southwest area, which includes Grandville. The overall vacancy rate there was 7.8 percent at year end, with an additional 88,596 square feet of vacancy added during the year. There is a total of 28.9 million square feet of industrial space in the southwest area.
In the report, G&E|PC generally defines "West Michigan" as Kent County, dividing Greater Grand Rapids east and west by U.S 131 and north and south by Interstate 196. A fifth designated submarket within that area is downtown Grand Rapids.
Southeast Grand Rapids has the largest amount of square feet of industrial space — 49 million square feet — and the largest vacancy rate at 12.3 percent. Downtown Grand Rapids, with 12.8 million square feet of industrial space, has the lowest vacancy rate of any sector in the city, at 2.3 percent.
The G&E|PC report also indicated:
General industrial property, which totals 87.3 million square feet, had a vacancy rate of 8.5 percent, while there is 21.1 million square feet of warehouse/distribution space, with a vacancy rate of 9.5 percent.
The other two types of industrial space designated by G&E|PC are incubator (370,000 square feet, 1.4 percent vacant) and R&D/flex (3.8 million square feet, 11.8 percent vacancy). R&D/flex is a combination of different types of industrial space, including offices.
The report states more than 500,000 square feet of industrial space is currently under construction for specific companies, primarily in the southeast and southwest sectors, and is slated to come online in 2008. However, construction built on speculation is almost at a standstill and will remain inactive through the coming year, while redevelopment of older manufacturing space will remain a viable, low-cost option to many industrial users.
“As we explained during our January Forecast event, we anticipate continued improvement in the industrial market during the next 11 months,” Albrecht said. “As locally owned companies continue to search for new markets and new opportunities, we anticipate that new manufacturing and distribution companies will emerge and others will grow.”
Derek Hunderman, a vice president at G&E|PC and the advisor for the company's industrial real estate group, was one of the speakers at the 2008 Economic & Commercial Real Estate Forecast at DeVos Place in late January, presented by G&E|PC and the GVSU Seidman College of Business.
Hunderman showed a graph that indicated there are four cyclical stages of the industrial real estate market as it relates to the economy. Right now there is a declining vacancy rate coupled with no new construction on speculation. Those trends indicate the economy in West Michigan is in a recovery phase, said Hunderman.
Hunderman said the general public perception of our economy "is worse than the reality." While some manufacturers did close major Grand Rapids plants in 2005 and 2006, there were fewer plant closings in 2007, he said.
"The trend is positive," said Hunderman. "Manufacturing still drives a lot of our economy, and manufacturing is as not as bad off as we perceive."
Watch for “on spec” construction as a sign of what is happening in the industrial real estate market, said Hunderman.
"If we see an increase in demand, you're going to see some developers stick their necks out and build some," he said.
G&E|PC is the largest commercial real estate firm in West Michigan, with offices in Grand Rapids, Kalamazoo, Grand Haven and Holland.
The parent company, Grubb & Ellis Co. (NYSE: GBE) is one of the largest commercial real estate companies in the U.S., with more than 130 owned and affiliate offices worldwide.