Industrial real estate in ‘historically high demand’
With occupancy levels nearing 95 percent, clients consider building new.
West Michigan’s real estate professionals are anticipating a new wave of industrial construction based on market activity in the first quarter of 2018.
According to Colliers International West Michigan’s first-quarter market reports, industrial real estate is in “historically high demand,” with overall occupancy levels nearing 95 percent and an average asking rent of $4.95 per square foot.
The Colliers report also said the consumer confidence index peaked at 130, compared to 111 in the first quarter of 2017, leading to companies operating at or near full capacity.
As manufacturing holds strong, companies’ demand for more space is driving rent up to the point where clients are considering building new.
Stuart Kingma, associate broker with NAI Wisinski West Michigan, said inventory levels are “historically low,” leading to a rise in cost for existing space that is now competing with the cost of new construction.
“At some point, that gap will reach an equilibrium where it’s the same where you rent or buy from a value perspective,” he said. “Then, obviously, new construction becomes even more attractive.”
Bob Horn, senior vice president and assistant director of JLL Grand Rapids, agreed occupancy was the tightest he had ever seen.
“It’s the landlord’s market right now,” he said.
However, he added the increased demand for construction was applicable to all sectors in West Michigan, causing a backlog of projects that may slow the rise of new industrial builds.
“The big story is obviously the speculation that Amazon’s coming into the market,” he said.
West Michigan was kicked out of the lineup of possible homes for Amazon’s second U.S. headquarters in January, but documents from the Gaines Township Planning Commission issued in March indicated a buyer linked to Amazon wished to purchase land for an 855,000-square-foot warehousing and distribution center in the area.
Speculative builds still are not hot on the market. Even though consumer confidence is high, companies may be hesitant for fear of oversaturating the market.
“I think the market is still remembering 2008, 2009,” Kingma said. “The spec is not taking off as we’ve seen in years past.”
Horn echoed the same trend. While some speculative construction is occurring, most new builds are either expansions or build-to-suits. He also noted the increase in companies preleasing space.
“Again, that’s a product of vacancy,” he said. “Buildings are being leased before they’re being completed.”
NAIWWM recorded a total overall vacancy of 1.4 percent, or about 2.1 million of a recorded 151.5 million square feet. The average asking rent was $4.50 per square foot.
The highest vacancy according to NAIWWM was 2.4 percent in the Lakeshore region. With a total rentable building area of about 36.2 million square feet, 860,640 square feet was vacant, and the average asking rent was $3.70 per square foot.
According to JLL’s numbers, the market total vacancy at the end of the first quarter was 3.7 percent, with a total RBA of about 236.2 million square feet and about 8.8 million square feet available. The average asking rent was $3.24 per square foot.
The highest vacancy JLL found was 9.7 percent in the Southwest Michigan market. The region had a total RBA of about 42.3 million square feet, 317,405 of which were available. The average rent was $3.29 per square foot.
JLL also recorded 492,740 square feet of new space was completed by the end of the first quarter, and 697,918 square feet still are under construction.
Colliers International West Michigan saw a total vacancy of 5.3 percent at the end of the quarter, with about 117 million square feet of RBA and about 6 million square feet of vacancy.
First-quarter market activity highlighted by NAIWWM includes Park Hannifin’s $5 million, 30,000-square-foot expansion of its plant at 8790 Tamarack Road, Lakeview. The company is an Ohio-based manufacturer of motion and control technologies. The project was awarded a $250,000 Michigan Business Development grant by the Michigan Economic Development Corp.
NAIWWM also noted Pfizer opened a 98,500-square-foot warehouse on 7000 Portage Road in Kalamazoo. The campus in which the new warehouse is located is the largest in Pfizer’s portfolio, and the company has invested $1 billion in improvements over 10 years, with plans to invest another $1 billion over the next five.
JLL said over 490,000 square feet of new industrial space was delivered in the first quarter, including Robert Grooters Development’s speculative project in southeast Grand Rapids and Magna Mirrors’ expansion in Holland.
JLL and Colliers noted the fire protection company Viking Group’s purchase of land for a new global headquarters in Caledonia near M-6 and I-96. The new facility is expected to go online in 2019.
According to Colliers, the southeast has seen the most action, with more than 100,000 square feet of absorption in the submarket. In March, Vision Real Estate broke ground on 90,200 square feet of speculative space on 76th Street, of which 25,000 square feet already have been leased.
Colliers tracked a total 17 industrial projects under construction, totaling about 1.5 million square feet in the first quarter.