Manufacturing and Real Estate

Industrial market turns positive

CBRE reports vacancy is down, while building value is up for some.

May 24, 2013
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The overall vacancy rate for the county’s leaseable industrial real estate space fell to 13.9 percent at the beginning of this year. About a year ago, the rate was 14.7 percent.

CB Richard Ellis of Grand Rapids recently reported that more than 551,000 square feet of leaseable space was absorbed during the last six months of 2012.

At the same time, the vacancy rate for gross space ended last year at 7.8 percent, which was down a full point from the previous year. CBRE/GR reported more than 862,000 gross square feet was absorbed over the last half of last year.

CBRE/GR said a key reason behind the recent gains is the local manufacturing base has diversified and is serving the major office furniture and medical instrument manufacturers in the area, like Steelcase, Stryker, Haworth, Herman Miller and Autocam Medical.

“Additionally, our local economy has benefitted from the continued growth of the food-processing industry. West Michigan-based companies such as Roskam Bakery, Michigan Turkey Producers and Continental Dairy have grown exponentially and have helped to absorb large manufacturing factories previously utilized for office furniture and automotive manufacturing processes,” wrote Jill Langosch, CBRE/GR vice president of research.

“The combined increase in manufacturing output and absorption of quality manufacturing space has generated an increased demand for available warehouse space, either directly by the OEMs or by third-party logistics providers,” she added.

CBRE/GR also reported the net absorption has raised the value of industrial space in the county, but not all buildings have benefitted from that increase yet. While speculative construction has stalled, more build-to-suit projects have surfaced and mostly for companies that haven’t been able to buy the type of buildings that best fit their needs.

So Lacks built 200,000 square feet in Cascade Township and Heeren Brothers built 150,000 square feet in Alpine Township. Another build-to-suit saw CHEP USA put up 85,000 square feet in Kentwood. CHEP makes pallets, containers and plastic crates for a variety of industries.

“With dwindling supply, conversations regarding speculative development are expected to grow,” wrote Langosch.

Langosch pointed out that finding Class A warehouse space with at least 100,000 square feet is a challenge. She said the asking rate for this type of space has remained constant, but the market-lease rates are at pre-recession levels.

CBRE/GR also reported that investors bought four industrial buildings on the southeast side with more than 1 million cumulative square feet of space during the last quarter of last year. Two were on 44th Street, one was on Kraft Avenue and another was on Broadmoor Avenue.

The Kent County industrial market has nearly 95 million square feet of gross space. About 50 million of that square footage is classified as leaseable, while 45 million square feet is owner occupied.

“The Grand Rapids area has historically been considered a conservative business and real estate development market and we will likely see additional build-to-suit opportunities and an increase demand for modern warehouse and distribution space,” wrote Langosch.

“Conversations regarding speculative development will continue to grow louder, but the market must continue to demonstrate steady improvement and strengthening of real estate fundamentals throughout the year.”

A look at the leaseable space in the county's industrial real estate market at the start of this year by the area's five submarkets 
Market Leaseable Square Feet Vacancy Rate Net Absorption Asking Lease Rates (NNN)
Grand Rapids 5,897,196 15.0% -8,026 $2.00-4.95
Northeast 1,922,728 4.2% 40,800 $2.50-4.50
Northwest 7,036,814 16.7% 42,287 $2.50-4.75
Southeast 22,498,669 15.9% 487,488 $2.00-7.00
Southwest 11,806,247 9.5% -10,898 $2.25-4.95
Total 49,161,654 13.9% 551,651  

Source: CB Richard Ellis of Grand Rapids, Industrial MarketView, May 2013.

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