Vacancies rise in industrial market
Vacancy rates in the metro area's industrial real estate market rose at the end of last year, but at a slower pace than the first six months of the year. As expected, no new construction is on the horizon and bank financing remains very difficult to get, partly because property values have dropped.
That summary of the market's dismal condition comes from commercial real estate broker CB Richard Ellis/Grand Rapids. In the firm's Marketview report for the 4th quarter of 2009, the average vacancy rate across Kent County for leasable space stood at 19.3 percent at the end of last year. That figure was up by 3.3 percent from a year earlier but only 1.4 percent higher from the end of June — which may suggest that losses could be slowing.
"As we move into 2010, the Grand Rapids industrial market is expected to continue to face challenging times, as more businesses close and reduce their footprints," wrote Jill Langosch, CRBE/GR vice president of research.
"However, a gradual increase in lease and sales activity is combating the climbing vacancy rates, and market losses are slowing," she added.
The market saw 360,674 square feet become available over the last six months of 2009, a marked improvement over the first six months when more than 1.1 million square feet went on the market. The vacancy rate at the end of June was 17.9 percent.
The picture was a bit brighter for gross space, which includes square footage occupied by owners of buildings. The vacancy rate for that type of space was 11.9 percent at the end of the year. It was up by 2.2 percent from a year ago, but only higher by four-tenths of a percent from six months earlier. Those numbers also suggest that losses may be slowing for gross space, as well.
"Negative absorption is anticipated throughout 2010, and the market will be further impacted by GM's decision to vacate its 2-million-square-foot stamping plant in the southwest submarket later this year," said Langosch of the automaker's 36th Street plant in Wyoming.
Lease rates have gone down a bit to reflect the vacancies. But Langosch reported that the spread between list rates and deal rates continued to be larger than normal, and she anticipates that listed rental charges will fall further by the end of this year.
"In the meantime, landlords continue to offer aggressive lease packages with free rent and concessions to attract tenants to their buildings," she said.
CBRE/GR reported one fairly major transaction recently, as Ashley Capital leased over 100,000 square feet of space in the former Steelcase file plant at 3800 Eastern Ave. SE to Wolverine Holdings of West Michigan. Knape & Vogt Manufacturing Co., which makes and distributes hardware, storage-related components and ergonomic products, is the new tenant. CBRE/GR represented Wolverine Holdings.
There wasn't any new industrial construction during the fourth quarter and isn't likely to be any in the immediate future.
"There was no speculative construction this period," said Langosch, "and the restricted availability of capital will continue to hold new supply in check."