Its warehouse renters market, but

December 7, 2009
| By Pete Daly |
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When it comes to warehouse space in West Michigan, it's a renters' market out there — but be prepared for change.

In the past, said Kelly Springer, warehouse owners were scrutinizing potential tenants, trying to "evaluate what their financial position was. Now I think the tables have turned."

Springer, a CPA and partner at Plante & Moran in the accounting firm's Grand Rapids office, said now the questions are being asked by potential tenants, who want assurance that the warehouse owners are "financially strong enough to weather the economy."

According to data provided by Plante & Moran, the warehouse vacancy rate in Grand Rapids at the end of the third quarter was 9 percent, up from 8 percent at the end of the second quarter. New leases in the first three quarters took up more than 223,000 square feet of space, but during that same period, more than 201,000 square feet became available.

The vacancy rate was around 9.5 percent halfway through 2007, then dropped to under 8 percent by the spring of 2008.

For all of Kent County, Co-Star Property estimates that at the end of the third quarter, there was slightly more than 114 million square feet of rentable building area, or RBA. Rents are typically based on RBA, which is the space the tenant will occupy in addition to the associated common areas of the building such as the lobby, hallways, bathrooms, equipment rooms, etc. That warehouse space is made up of approximately 2,750 buildings. The average quoted rent was $3.66 per square foot.

Muskegon County had 20.8 million square feet of RBA, renting at an average of $2.51, while Ottawa County had 36.6 million square feet of RBA, going for $2.92.

The current economy "presents some unique challenges," said Springer, who has been with Plante & Moran for 20 years. Virtually all companies, of course, are paying more attention to ways to reduce cost.

There is a variety of space available in West Michigan, which has many of her clients "evaluating what they look to get out of that space. They're really thinking very strategically when they think about the warehousing needs they have — both today and going forward,"  she said.

"We anticipate that rental rates will stay low for awhile, so companies shouldn't rush to secure space to get them through new product launches or other short-term opportunities," she explained. "It's important to be strategic and to anticipate your future growth and needs before you sign anything."

While a company might be storing raw materials in its warehouse facility now, what about the future? Are there plans to expand into the service parts business? Spring said it's critical to look at the business and its needs in both the short-term and long-term.

Location is a big issue these days, too. In some cases, companies are discovering available warehouse space closer to where their products will be distributed to customers.

"In certain cases, we're seeing clients that are finding that there are great deals to be had," said Springer.

Location can also play a key role in the ease — or lack thereof — of moving inventory in and out. Close proximity to expressways, and to express shippers, is an issue.

The financial industry over the last year has obviously retreated from the real estate market, but Springer said she sees a thaw ahead.

"I think that's really going to be the case that will be visited here soon. I think the commercial real estate market is a little different from the residential market, and that a lot of those financing decisions will be made in the next 12 months, as I look at my clients."

If a warehouse owner got into that property five years ago "with some type of construction loan, now is the time to revisit that," she said.

"If you think about the economy in general, on the bank side, they have to evaluate how much real estate they want to continue to have in their portfolio, and how does commercial real estate fit into that. Those are different decisions."

How well manufacturing does will be a factor.

"It's a combination of what is the value of real estate and would the property you had borrowed against still appraise out at what you borrowed?" she said.

If the leased property in question is "strictly warehouse," versus a multi-purpose structure that could be used for a variety of things, it will have less potential for being consistently occupied by tenants.

The banks are also looking at the tenants and the length of time left on the leases as factors in their loan renewal decisions, she said.

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