Industrial real estate market treading water
The vacancy rate for leased industrial space in Kent County rose to 18.4 percent halfway through last year, up from 18.1 percent at the start of 2010. But when owner-occupied buildings are included, the overall vacancy rate for all industrial properties was 11.5 percent, up from 11.2 percent six months earlier.
“There were only a handful of notable transactions completed over the past six months, while consolidations and foreclosures continued,” wrote Jill Langosch, vice president of research for CB Richard Ellis of Grand Rapids, in the firm’s industrial market report.
“Building sale activity has been extremely slow. However, the number of buildings available within the market is increasing as more lenders are foreclosing on industrial properties. Market pricing will remain lower than normal, particularly the sale of many of these distressed assets,” she added.
According to the CBRE/GR report, there were only two transactions countywide for more than 100,000 square feet of space in those six months, and three other deals that ranged from 48,000 to 76,000 square feet. Langosch said there wasn’t any speculative construction during that period and her firm doesn’t expect any new building projects in the immediate future.
The county’s industrial market has 96.6 million total square feet of space, and 53.3 million square feet is considered leaseable. At a vacancy rate of 18.4 percent, that means 9.8 million square feet of leaseable space is empty.
A majority of the county’s leasable industrial space — 24.7 million square feet — is in the southeast sector, which had the county’s highest vacancy rate at 24.4 percent. The northwest sector, with 7.4 million leasable square feet, had the second-highest vacancy rate at 21.6 percent.
“Overall, average market lease rates have dropped slightly over the last six months. Lease rates continue to vary depending upon specific requirements. Tenants continue to find aggressive rates for bulk warehouse space, while rates are higher for tenants with specific needs,” said Langosch. “Furthermore, some landlords are challenged to secure financing for specific tenant improvements.”
Lease prices ranged from a low of $1.50 per square foot to a high of just under $5.00 per square foot. Another 200,000 square feet of vacant industrial space should go on the market soon from the General Motors 36th Street stamping plant in Wyoming, which could drive leasing rates down even further.
CRBE/GR said a recovery in the market is being slowed by all the usual suspects: high unemployment, a lack of capital, volatility in the financial market, and the uncertainty that has been expressed by consumers and businesses.
The overall vacancy rate for all industrial properties nationwide also rose from 13.2 percent to 13.5 percent, a figure that is higher than the 11.5 percent rate in the county.
“Leasing agents report an increase in inquiries, showings and overall activity. However, many tenants remain cautious and are slow to commit to leases. Companies continue to report profits, but are waiting for longer-term visibility and uncertain tax and health care issues associated with the November elections,” said Langosch. “Thus, we anticipate the market will continue to tread water.”