New construction continues to rise
Inventory finds its way onto market despite costs to build at an ‘all-time high.’
New construction is heating up across West Michigan’s industrial landscape as manufacturing continues to thrive and quality inventory becomes scarce.
Despite construction costs being at an “all-time high,” new inventory is finding its way onto the market as costs to rent rise to compete with the cost to build. According to NAI Wisinski of West Michigan’s second-quarter market report for 2018, the rise in new construction over last quarter includes a rise in speculative builds.
“Many of the new speculative construction buildings are experiencing immediate interest from tenants in the market and many of them are being built with signed leases already in place for a portion of the space,” said Stu Kingma, associate industrial broker with NAIWWM.
Kingma predicted the trend would continue through 2018. While interest rates continue to rise, they don’t seem to slow industrial clients’ demands for prime real estate in West Michigan.
“It remains to be seen what impact the tariff talk from Washington has on our market, but to date, demand continues to push the supply to uncomfortably low levels,” Kingma said.
NAIWWM observed a total 1.6 percent vacancy rate and an average rent of $4.30 per square foot.
Colliers International West Michigan tracked 18 industrial projects under construction, totaling 1,932,127 square feet and a total vacancy rate of 5.16 in Q2.
New construction highlighted in the Colliers report includes Automated Machine Systems’ 25,000-square-foot expansion of its Jenison facility, MetalTek Inc. adding 7,200 square feet to its current Grand Rapids location on Marlin Court NW and BICO Steel building onto its Grand Rapids location at 99 Steele St., creating an additional 40,000 square feet.
Trent Wieringa, associate vice president with Colliers International West Michigan, said even though manufacturers are expanding, the industry as a whole continues to suffer from labor shortages. To continue their output, manufacturers are increasingly embracing automation.
“Manufacturing is still growing and thriving, and people are still finding ways to get around the labor shortage,” Wieringa said.
He added the majority of new builds coming to market have either manufacturing or warehousing purposes.
Possibly the hottest new build announcement of 2018 was Amazon’s new warehousing and fulfillment center in Gaines Township. The Business Journal previously reported the 855,000-square-foot facility is a $150-million investment, and the company expects to create up to 1,000 full-time jobs.
The center is expected to be complete by February 2019.
CBRE Grand Rapids observed a total 436,500 square feet of new industrial space delivered to the market in Q2, with over 1.5 million square feet in the construction pipeline. Overall vacancy was 1.9 percent across West Michigan.
Most notable among CBRE’s finds are three speculative builds: 185,000 square feet at 6610 Patterson Ave. SE, 92,400 square feet on 76th St. SW and 125,000 square feet on Broadmoor Avenue SE.
“As a market, we haven’t had a lot a speculative (builds in the past),” said Drew Miller, senior vice president of CBRE Grand Rapids. “The trend we’re seeing is new buildings are going up that have a portion of them preleased, and a portion is on a speculative basis.”
Miller added the type of product in demand and its availability could determine whether businesses choose existing space or new construction.
“If you’re an occupier … there are limited options, so the best solution may be new construction,” Miller said. “From the developers’ perspective, the lease rates that they’re requiring are going to be higher.”
Even if the cost of new construction is higher than current lease rates — which Miller said could be as much as 10 to 20 percent higher — new builds still come with the appeal of better amenities.
On the construction side, some builders are facing the challenge of meeting the increasingly specialized needs of industrial clients along with their own labor shortages. Chris Beckering, executive vice president of Pioneer Construction, said his firm primarily services building owner-users who are regularly looking for built-to-suit space.
“Whether it be special power or water/sewer requirements, rail spurs, higher clear heights, specialized fire protection systems, etc., the available building inventory often does not suit the needs of tenants,” Beckering said.
He added as automation increases, the cost of equipment within an industrial facility often exceeds the cost of construction, but the ensuing productivity and efficient workflow savings sometimes more than offset the cost of a custom-built, high-performance facility.