- change ups
Industrial real estate market still going strong
Low inventory of properties could be a challenge down the road.
The momentum the industrial real estate market has built over the past year or so continued through the recently completed third quarter.
The Commercial Alliance of Realtors reported that 14 industrial buildings were sold over the past three months. Although the number was down from the third quarter of last year when 23 changed hands, the sales volume from the recent transactions was 10 percent higher than a year ago.
“It is believed that the sale of distressed properties exhausted itself in 2012, leaving few industrial buildings available for sale,” read the CAR report.
Colliers International of West Michigan sold two of those structures. One was a 28,320-square-foot building in Wyoming at 5760 Hawkeye Court SW. It sold for $1.2 million, or $42.37 per square foot. The other was a 19,890-square-foot building at 1294 Chicago Drive in Grandville. The final sales price was $855,000, or $42.99 a foot.
“Over the last quarter, the number of deals completed remained on par with recent quarters,” read the report from Colliers.
CAR also reported that year-to-date sales have risen from 39 in 2012 to 51 this year, which is nearly a 31 percent hike in just the last dozen months. Colliers International added it has closed on deals, or put under contract, more than 150 acres of land for six buyers.
“Construction of industrial space has reached its highest levels in eight years and the land movement is poised to create further increases over the previous year, especially as the need for manufacturing space continues to escalate,” read the Colliers report.
The CAR report said the region’s low inventory of industrial properties has caused potential buyers to look into new construction, and sales of vacant land are up because of that low inventory situation.
“Some new construction has started within the region. However, construction costs still remain higher than recent existing building sales prices, making land acquisition and new construction prohibitive for some,” read the CAR report.
“A few buyers have purchased older sites, are demolishing existing structures, and are spending on significant capital improvements in order to meet their needs.”
Colliers International offered a few examples of new construction in the market. Gordon Foods is building a 94,000-square-foot freezer facility at 651 50th St. near its distribution center. CHEP Pallet recently finished a 65,000-square-foot expansion, and the Undercar Products Groups is wrapping up a 110,000-square-foot expansion.
According to CAR, lease rates also are up — by as much as 10 percent in some cases — over the past year in both the manufacturing and warehouse sectors of the industrial market. Lease rates also rose along the lakeshore. CAR felt rental rates went up because building inventory was low.
Colliers International reported the region’s vacancy rate fell from 6.9 percent halfway through the year to 6.6 percent at the third-quarter mark. Most tenants and buyers located in the metro area’s southeast district, but many also went to the southwest sector because space was limited in the southeast.
“The recent slight increase in interest rates has not dampened the needs of potential buyers and investors. However, most interest in the market is still being generated by potential buyers due to interest rates near historic lows and owner-occupancy currently being a more cost-effective option compared to leases in many cases,” read the Colliers International report.
The report added the increase in new construction and a low inventory of available product should push lease rates up in the future.
The region’s industrial market has 1,855 buildings with a total of 112.5 million square feet of space. Of that square footage, 7.4 million square feet was vacant at the end of September.
“Overall, the market continues to improve,” read the CAR report. “The challenge for the next few months will be supplying buyers with the inventory that is demanded. West Michigan’s employment numbers are strengthening, and benefit from the diversified manufacturing base that this region supports.”