Industrial real estate sector primed for movement
Resurgence of automotive industry is fueling much of the growth.
2014 was a busy year across all sectors of West Michigan real estate, but particularly in the industrial market.
Last year, the region experienced a roughly 30 percent increase in volume, both in terms of transactional numbers and in terms of dollar numbers done in total over 2013, said Stu Kingma, an associate broker with NAI Wisinski of West Michigan.
“And 2013 was a good year. It wasn’t that it was down; it was up,” he said. “So now it’s up over up, which certainly speaks to the resiliency of the market here.”
Much of the industrial growth was driven by the resurgence of automotive, Kingma said. The sales volume of vehicles manufactured and sold in 2014 was running between 16 million and 17 million nationwide, which was up from the reported 9.5 million units sold at the low point of the Great Recession, Kingma said, calling it “a gargantuan change.”
He credits this to the boom in the economy and the natural length of time that “folks have held on to their cars” before needing to purchase new ones.
Although West Michigan doesn’t have an automotive assembly plant per se, the area does have many Tier 1 auto parts suppliers, all of which are “operating at a very high level in terms of trying to keep those lines moving in other parts of the country,” he said.
“It’s been many, many years since a new assembly plant was put into the state of Michigan. Whether that happens going forward remains to be seen, but certainly it’d be a welcome addition,” he said. “I’d like to think we could.”
It’s no secret that building space in the city of Grand Rapids is scarce and the local industrial sector has also been feeling that pinch, Kingma said. It’s a great problem to have, he said, and certainly a better problem to have than the ones the industry had in 2009.
“From an industrial vacancy rate, due to all that national demand, we’re down to a vacancy rate on the industrial side that’s in that 5 percent range in West Michigan. There is very little in the way of existing product to purchase,” he said.
“If you are in the market for a 50,000- to 100,000-square-foot building and you want to buy it, the selection is what I would deem to be near or at an all-time low.”
Kingma said this scarcity of space will drive two things: First, he said, it’s going to drive the leasing market further than it already has, adding he’s already seeing the impact of this. Second, it’s going to drive vacant land sales because people will have to “go to ground” to meet their needs, and for construction companies, that could mean an increase in wages in order to attract much-needed quality employees.
One trend he believes the area will see this year is a shift in suburban-located companies that have industrial components to locations closer to downtown Grand Rapids. Practically speaking, these types of companies would likely keep their manufacturing or assembling components in the suburbs but house their engineering, design and creative staff downtown.
Kingma said he’s currently working with a number of “large users” who want to be closer to downtown for access to the millennial labor pool. The net result of this shift, overall, will be an expansion of the downtown, he said, with areas like the North Monroe Corridor and the west side growing.
“I’m working with a lot of companies that historically are suburban-located businesses, and they are eyeing opportunities located closer to downtown,” he said.
“While that comes with cost and a little bit of congestion from the economic and transportation side of things, one thing they’re keying in on is the workforce and providing them an environment that is inviting.”
Another trend Kingma believes will take place is the continued “rehabbing” of old buildings, particularly warehouse buildings, and the tearing down and rebuilding of outdated buildings, as well as the utilization of surface parking lots. From an industrial standpoint, he said, there simply is not the space out there that local manufacturers are going to need.
“There’s many lots scattered around downtown that I think are prime for that potential reuse. It’s going to drive new construction, drive the energy level out from the center, and I think you’ll see more of these surface lots being re-tasked into something that’s more higher density and higher use,” he said.
“People are going to say, ‘What I need is not there. I guess Plan B is to build.’ The disconnect there is that construction prices relative to what you could buy existing (buildings) for were still and are still high. And what that translates into is an operational cost … and a financing puzzle that needs to be solved.”
In 2015, NAI Wisinksi is being cognizant of land because land is going to come into play more so than it has in the past, he said. Although one unknown at this point is interest rates, Kingma predicts they’ll go up, but when and by how much, he doesn’t care to speculate.
But what he is certain of is this: No matter how you slice it, 2015 is looking to be a productive year for West Michigan’s industrial sector.
“I look forward to 2015 being a reflection of 2014 with some different nuances to it, and the reflection being it’s going to be positive absorption, positive momentum, positive economic activity,” he said.
“I think … the differing reflections (will be) in the form of new buildings, additional re-tasking of near downtown buildings and just an overall sense of continued growth, which the last few years has definitely demonstrated is the certainly the direction.”