Indy vacancy rate rising this year
The vacancy rate stood at 7.5 percent at the end of last year, a figure that was down nicely from the 8.8 percent that ended 2007. But through the first half of this year, enough industrial space has been vacated to raise the rate more than a full point and past 8.5 percent — at least according to the early returns.
“The vacancy rate is definitely increasing. I’m looking at some preliminary stats that show it above 8.5 percent again, which means we’ve got some spaces coming back on the market,” said John Kuiper, a vice president with Grubb & Ellis|Paramount Commerce who specializes in the industrial market.
“If I try to figure out in some of the larger areas where the loss is coming from, a lot of it is in the warehouse-distribution segment of the market. It hasn’t gotten any prettier,” he said, adding that’s what he has seen in the marketplace but didn’t have official numbers yet to back his claim.
Warehouses make up about 19 percent of the industrial market and the vacancy rate was 18.5 percent at the end of 2005 but fell to 11 percent at the end of 2008. In addition to the occupancy gain, almost 2 million square feet of warehouse space was added to the inventory over those three years. That trend, though, is reversing.
And if activity in the economy doesn’t pick up over the last six months of 2009, the industrial market will record its first annual increase in the vacancy rate since 2006, when it just stopped short of reaching 10 percent at year’s end.
“Across the board, you’ve got a lot of companies that are near the end of their (lease) term, and they’re not renewing right now. They have excess space in their own facilities or they’re pulling out of the market. So as some of these leases roll, you end up with more available space again,” said Kuiper.
The rate was up at the beginning of last year too. At the end of the first quarter in 2008, the vacancy was 9.4 percent. But then a surge occurred and four companies took almost 2.5 million square feet off the market through consolidation, relocation and expansion.
“We were reducing the vacancy rate and filling up space last year. Last year was a great year with a lot of large companies coming in from out of town. Had we not had that, we’d really look like we were sliding the wrong way now,” said Kuiper.
“We probably underestimated how quickly the financial markets impacted the industrial market — or really the commercial real estate market across the board.”
Kuiper said when credit dries up, companies are forced to cut spending, and one of the first things they do is stop leasing space — even more so when sales and production numbers are declining and employees are being let go.
“They’re trying to cut as much as they can without impacting services to their customers to be able to weather the economy that we are in,” he said. “And it’s easier to move in the warehouse-distribution market. If you don’t need it, you can quickly let the lease go and let the space become vacant. If things pick up, there is enough out there that you can go grab some space.”
One potential space grabber just may come from overseas. When Gov. Jennifer Granholm returned from her recent trip to Germany she said fortu PowerCell, a battery-pack manufacturer, wanted to set up its North American shop on the west side of the state and would begin searching for a 25-acre location soon.
The search area is broad, reportedly ranging from Benton Harbor north to Traverse City, so the competition between municipalities for the investment and jobs is expected to be intense. Kuiper said there are a number of properties within the region that meet the size requirements the German battery maker wants.
Just off the top of his head, Kuiper listed more than a handful that might qualify. He cited four spots along U.S. 131 near Moline, two industrial parks near M-6, a parcel at Patterson Avenue and 52nd Street, a couple of large parcels on the northwest side that could be combined, and a few more options in the southwest region that could fill the bill. So land isn’t a barrier. But something else might be.
“One of the things we’re seeing with battery manufacturers is they require an awful lot of electricity. So the power feeds coming in to a site are pretty critical and you’ve got to make sure that you can deliver pretty substantial electrical power to them,” he said.
Kuiper also pointed out that the region has a not-so-secret weapon in its arsenal that just may convince fortu PowerCell to plant it roots in this industrial backyard. Her name is Birgit Klohs and she is president of The Right Place Inc., the area’s nonprofit economic development agency that has a lengthy and successful track record of bringing German firms to West Michigan.
“That gives us a pretty good advantage because she has a great reputation there,” said Kuiper. “She is German. She can speak their language and she can connect them with a lot of other people that have had success here in the marketplace. Those are all positives.”
Granholm said an incentive package would be put together to draw the firm to the state. She added that the company has identified multiple market areas it wants to engage in from its new location. Those include producing batteries for autos and trucks and making back-up systems for cell-phone transmitters, power-generation plants and recreational vehicles.