Construction, Manufacturing, and Real Estate

Warehousing demand foreshadows more 'shovels in the ground'

January 24, 2013
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Dutch fastener supplier Fabory opens new 50,000-square-foot warehouse in Cascade
Fabory operates a 50,000 square-foot warehouse in Cascade Township. The division of W. W. Grainger is based in the Netherlands city of Tilburg. Courtesy Fabory

Before Robert Grooters revealed his plan to build more than a million square feet of new industrial space this year — some of which will be used for storage — Stu Kingma told the Business Journal the warehousing segment of the market will need more space soon.

Kingma, an associate broker with NAI Wisinski of West Michigan, also called Grooters an iconic figure in that conversation for how much space he built roughly two decades ago — and credited him for being the catalyst for developing a majority of the warehousing square footage that is still in use.

Since then, some manufacturing buildings have been converted to storage space. Kingma estimated roughly 25 million square feet is devoted to warehousing today. Those square feet represent about a quarter of the total square footage in the entire industrial real estate market, which, up to recently, has been too much.

“For the last half-dozen years or so, it’s been an excess of space in terms of its capacity," Kingma said. "A lot of the manufacturing operators — as they went through the recession and as a consequence of that recession — their sales downsized, as did their requirement for space.

“So we had manufacturers throughout the boom years expand outside their four walls and acquire warehousing space on the outside to be able to keep up with their sales demand," he said. "But once that sales demand slacked, they had less of a need for it and, in many cases, retrenched back into their plants and set aside a component of that space for warehousing.

“So for the past four or five years, there has been an oversupply of warehouse space,” Kingma said.

Kingma feels there still is a surplus of storage space, but not nearly to the degree of just a few years ago. He said companies looking for warehouse space today can still find some, although their choices will be limited based on how much space they need and where they want that space to be.

“The sector near the airport has tightened up substantially," he said. "There is space left, but not anywhere near the amount of square footage there was 18 months ago."

Kingma said the southwest sector of the market has also tightened up, and, right now, he is doing deals for storage space on the northwest side.

“Those will take a good part of that inventory and put it back into use,” he said. “And it’s local manufacturers that are re-acquiring space — either on a direct basis or through a third-party logistics company that manages their outbound and inbound supply chain and distribution function."

That demand has lifted real leasing rates, not the asking variety, by 15 percent over the last year and a half.

Kingma feels if the current space-consumption trend continues, more warehousing space will be needed down the road.

“I believe that’s going to be the case," Kingma said. "I think the spaces we do have available today will continue to be absorbed, and, at some point, it’s going to be such that the choices won’t be there.”

If nearly all of today’s available space is leased or bought and the market is, for all practical purposes, filled in the near future, it won’t be the first time that has happened here.

“We had that problem six or eight years ago where we had demand for space that we simply couldn’t fill and that prompted some build to suits to take place,” he said. “We’re not there yet, though, for two reasons.”

First, Kingma said there are still opportunities to find vacant space today, although not as many as 18 months ago. Second, construction costs are still very high in relation to what someone can pay for existing space today.

“But that’s starting to narrow, especially on the sales side, and, eventually, it’s going to have to be shovels in the ground to satisfy the demand,” Kingma said. “We’re not there yet, but we’re light years closer than we were 18 months ago.”

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