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Diversification of the Metro Detroit Industrial Market Leading to Increased Demand Despite Slowing Automotive Production in 2017

Detroit, MI (01/10/2018)

10:00 AM

Newmark Knight Frank (NKF) released its fourth quarter 2017 industrial trends data for the Detroit region this week. According to the reports, diversification of the Metro Detroit industrial market leading to increased demand despite slowing automotive production in 2017.

Metro Detroit
The staggering rise of the automotive industry and the diversification of the Metro Detroit industrial market over the last seven years has resulted in historically low vacancies and historically high construction levels. Despite a slight decline in U.S. automotive sales from their peak of 17.5 million units in 2016, 2017 was another banner year for the metro industrial market, which recorded more than 6.9 million square feet of absorption and 4.3 million square feet of completed new construction. By comparison, absorption in 2016 totaled 7.6 million square feet, while new construction totaled 1.9 million square feet. The acquisition and expansion of buildings has not been limited to automotive companies: the e-commerce sector, led by Amazon, has been critical to Metro Detroit's diversified industrial expansion. Over the past two years, Amazon has dramatically expanded its footprint in Metro Detroit from roughly a half million square feet to over 3 million square feet by the end of 2018. In 2017, Amazon completed a 1.0 million-square-foot distribution center in Livonia, began construction of 850,000 square feet in Romulus and is in the planning stages of building a another 1.0 million-square-foot facility in Macomb County.

"The Metro Detroit industrial real estate market historically swung in the direction of the automotive industry, however, the e-commerce sector, led by Amazon, has been critical to Metro Detroit's diversified industrial expansion," said Fred Liesveld, managing director of NKF's Detroit office.

"Metro Detroit industrial real estate market is on its seventh year in expansion mode that has resulted in a vacancy decline from 16 percent to just 5 percent, over 51 million square feet of absorption, 66 construction delivers totaling 8.8 million square feet and another 5 million square feet of new construction set scheduled for completion in 2018. A strong core automotive industry coupled with the diversification of the metro economy has been the catalyst driving the expansion," said John DeGroot, research director of NKF's Detroit office.

Macomb County
The Macomb County industrial market posted one of its largest quarterly absorption figures of just over 742,000 square feet during the fourth quarter of 2017. The submarket's vacancy rate held steady at 3.0% during the fourth quarter, as the limited existing supply of mostly third-generation space is unable to meet current occupancy requirements for most companies. The bulk of absorption came from three build-to-suits: CIE Automotive's 294,000-square-foot building on Leone Drive in Macomb Township completed during the fourth quarter, as did Grupo Antolin's 250,000-square-foot building and Flex-N-Gate's 134,000-square-foot building in Shelby Township's Cherry Creek Corporate Park. For all of 2017, the submarket posted just over 1.9 million square feet of positive absorption, while 1.5 million square feet was constructed. In comparison, 864,000 square feet was absorbed in 2016, while new construction totaled 418,000 square feet. Whereas previous construction projects mostly consisted of build-to-suits, speculative developments are ramping up that will add much-needed modern space options for industrial uses in the market. Mancini Development is constructing one of the largest speculative developments, which will add 73,000 square feet of space on Van Dyke in Sterling Heights. Meanwhile, Kemp & Sherman Company is building two 20,000-square-foot buildings on Leone Drive in Macomb Township and on Peyerk Court in Romeo. Elsewhere, Nikos Import of Export LLC is building a 41,000-square-foot building on Regency Center Drive in Macomb Township, and C & D Building LLC is constructing a 17,000-square-foot building on Central Industrial Drive in Shelby Township. Looking ahead to 2018, Amazon is expected to begin construction on its second Metro Detroit 1.0 million-square-foot food distribution center in Shelby Township. Meanwhile, Lanzen Fabricating Inc. is expanding into a 93,000-square-foot build-to-suit that is scheduled to be completed in mid-2018.

Southwest Oakland County
The Southwest Oakland County submarket vacancy rate held steady at 5.0% during the fourth quarter, as just over 132,000 square feet was absorbed. New construction remains very active in the submarket. Two build-to-suit construction projects were completed during the quarter, Daifuku North American Holding's 76,000-square-foot facility on Cabot Drive in Novi and SW North America, Inc.'s 40,000-square-foot building on Lyon Industrial Drive in New Hudson. New speculative developments are adding much needed vacancies to the submarket. Dembs Development completed a 52,000-square-foot speculative development on Twelve Mile Road in Novi, while in Highland Township, developers finished a 34,000-square-foot speculative development known as the Oakland Business Center. 2017 proved to be another strong year for the Oakland County submarket, as 967,000 square feet was absorbed over the past four quarters, while 857,000 square feet of new construction was completed. By comparison, the submarket absorbed 991,000 square feet in 2016 with 436,000 square feet of completions. Heading into 2018, Southwest Oakland County will remain a hot spot for construction activity with nine active construction projects that are slated for completion in the coming months. Five of these projects are speculative developments in Wixom, Novi and Lyon Township ranging from 30,000 to 100,000 square feet. As for build-to-suits, A123 Systems, Inc. and Hino Motors are finishing facilities totaling 150,000 square feet and 100,000 square feet, respectively, on Twelve Mile Road in Novi. Meanwhile, Testek Inc. is expanding its facility on Lakewood in Lyon Township by 31,000 square feet, and American Interiors is building a new, 12,700-square-foot building on Hudson Drive in Novi.

Southeast Oakland County
The Southeast Oakland County industrial vacancy rate fell 70 basis points to 3.8% during the fourth quarter, as just over 730,000 square feet was absorbed. New construction and expansions continued to drive the market, as companies are in need of greater operational space. Both FEV North America and Brose recently announced plans to invest millions to expand existing facilities. Meanwhile, Martinrea International Inc. completed construction of its 108,000-square-foot build-to-suit facility on Opdyke Road in Auburn Hills. The Southeast Oakland submarket also saw significant absorption of existing buildings during the quarter, such as LG's occupancy of 240,000 square feet in the Tri-County Commerce Center in Hazel Park; i.M. Branded's 150,000-square-foot lease on Centerpoint Parkway in Pontiac; and Paslin's 137,000-square-foot lease on Long Lake Road in Troy. 2017 was a very active year for Southeast Oakland County, as the submarket posted just over 2.1 million square feet of positive absorption, while new construction completions nearly topped 1.0 million square feet. This represents a marked improvement over the previous year, when the submarket posted 1.2 million square feet of positive absorption and 711,000 square feet of new construction completions. Looking ahead, the submarket has six active construction projects totaling 500,000 square feet that are scheduled for completion in 2018. Four of the projects are build-to-suits for INCOE Corp., Hutchinson, Rapid Shred and George W. Auch Company. Meanwhile developers Burton-Katzman, Cunningham-Limp and Magnum Industrial Building Company are set to complete speculative developments in Auburn Hills that will bring a combined 363,000 square feet of much-needed available space to the submarket.

Southern Wayne County
The Southern Wayne County industrial market saw a slight uptick in overall vacancy, as the rate climbed 10 basis points to 2.1% during the fourth quarter. Negative absorption was mostly attributed to an 180,000-square-foot vacancy at 21405 Trolley Industrial Drive in Taylor and a 142,000-square-foot vacancy in the Brownstown Business Center. A portion of the submarket's increased vacancy was offset by Logos Logistics, Inc. absorbing space on Wahrman Road in Romulus and Piston Properties LLC's leasing at the Van Buren Business Center. Other notable deals included Crane Logistics' 136,000-square-foot sublease at the Airport Distribution Center in Romulus and C-MAC Transportation LLC's 134,000-square-foot lease at the Brownstown Business Center. As Metro Detroit's primary bulk warehouse/distribution market, Southern Wayne has recorded occupancy levels of more than 98% for the past two years, leaving distribution companies looking for space in the submarket with virtually no options. This scarcity of space has caused new construction activity to skyrocket: Heading into 2018, 2.3 million square feet of new construction is set to be completed. The bulk of new construction are three build-to-suits near Metro Airport in Romulus, with Amazon building an 857,000-square-foot facility, Penske Logistics a 606,000-square-foot facility and Chrysler a 500,000-square-foot facility. Meanwhile, Spartan Real Estate Group LLC is planning a 416,000-square-foot speculative facility on Ecorse Road in Romulus.

Western Wayne County
Western Wayne County's industrial market posted just over 1.0 million square feet of positive absorption during the fourth quarter of 2017. The absorption spike was the result of Amazon completing its 1.0 million-square-foot build-to-suit distribution center at 13000 Eckles Road in Livonia. With a 3.5% vacancy rate, the submarket has limited availability, which has pushed up construction levels. Heading into 2018, ongoing construction projects will add 1.2 million square feet of new inventory to the market. Three of the major active build-to-suit projects include Marimba Automotive's 107,000-square-foot building on Van Born Road in Canton; Tenneco's 100,000-square-foot facility on Technology Drive in Northville; and Oerlikon's 80,000-square-foot building on Concept Drive in Plymouth. Meanwhile, on the speculative side, Ashley Capital is currently developing the Livonia Corporate Center, a four-building complex that will add over 900,000 square feet of much-needed modern bulk distribution space to the market by early 2018.

About Newmark Knight Frank
Newmark Knight Frank (NKF) is one of the world's leading commercial real estate advisory firms. Together with London-based partner Knight Frank and independently-owned offices, NKF's 15,000 professionals operate from more than 400 offices in established and emerging property markets on six continents.

With roots dating back to 1929, NKF's strong foundation makes it one of the most trusted names in commercial real estate. NKF's full-service platform comprises BGC's real estate services segment, offering commercial real estate tenants, landlords, investors and developers a wide range of services including leasing, corporate advisory services, consulting, project and development management, property and corporate facilities management services, valuation and advisory services, and capital markets services provided through its NKF Capital Markets brand. For further information, visit www.ngkf.com.

NKF is a part of BGC Partners, Inc., a leading global brokerage company servicing the financial and real estate markets. BGC's common stock trades on the NASDAQ Global Select Market under the ticker symbol (NASDAQ: BGCP). BGC also has an outstanding bond issuance of Senior Notes due June 15, 2042, which trade on the New York Stock Exchange under the symbol (NYSE: BGCA). BGC Partners is led by Chairman and Chief Executive Officer Howard W. Lutnick. For more information, please visit www.bgcpartners.com.