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Metro Detroit Industrial Users Continue to Add Capacity Despite Tariffs and Strikes

Detroit, MI (10/09/2019)

1:00 PM

Newmark Knight Frank (NKF) released its third quarter 2019 industrial trends data for the Detroit region this week. According to the reports, Metro Detroit's industrial construction activity continued to grow during the third quarter of 2019 despite the market battling tariffs and looming General Motors autoworkers strikes.

Seven new construction projects broke ground during the third quarter totaling 1.6 million square feet- an increase of 34.0 percent over the previous quarter- to 5.6 million square feet. Year-to-date, new construction starts total 5.1 million square feet with new completions totaling 1.5 million square feet. Build-to-suits make up the bulk of new construction for companies such as Subaru, Cooper Standard, Aperam, Tiberina Group and SAPA Transmission. These projects continue the trend of major investments coming into Metro Detroit.

Earlier in the year, Fiat Chrysler began construction on a new, $1.6 billion production facility at the Mack Engine complex, and Amazon is currently planning to redevelop the former 127-acre Pontiac Silverdome site into a 3.0 million-square-foot distribution site. Meanwhile, as regulations for a legalized marijuana market are drafted and local municipalities approve laws regarding the growth and distribution of marijuana, developers are building new inventory to accommodate the cannabis industry. Metro Detroit's industrial vacancy rate held steady at 4.1% during the third quarter of 2019, as net absorption totaled just over 404,000 square feet.

"Despite the market battling tariffs and ongoing General Motor autoworkers strikes, the industrial market continues to expand," said Fred Liesveld, managing director of NKF's Detroit office. "Leading the industrial expansion in 2019 are foreign and domestic automotive suppliers and the growing legalized marijuana industry. In 2020, e-commerce will be leading the expansion with Amazon's redevelopment of the former 127-acre Pontiac Silverdome into a 3.0 million-square-foot distribution site."

Southeast Oakland County
New construction in Southeast Oakland County grew 40.0 percent to just over 1.6 million square feet during the third quarter of 2019 and is set to drastically increase in 2020 as a result of limited availabilities in the submarket, rising lease rates and continued demand for modern facilities. The vast majority of construction starts during the third quarter were speculative developments. The burgeoning marijuana industry has spawned construction of a new, 288,000-square-foot Cannabis Business Park in Orion Township that is already 75.0 percent pre-leased. Meanwhile, Schostak Brothers & Company, Inc. began construction on a 138,000-square-foot speculative development on 2150 Executive Hills Drive in Auburn Hills. A smaller, 46,000-square-foot facility is also going up on Lapper Road in Lake Orion. These new speculative developments follow Ashley Capital's second major distribution facility, a 695,000-square-foot distribution center in Hazel Park, which began construction earlier in the year and already 100 percent pre-leased. One of Metro Detroit's largest developments is a new distribution center for Amazon that is likely to begin construction in 2020. The facility, which is slated for the 127-acre Pontiac Silverdome site, could total more than 3.0 million square feet. The vacancy rate in Southeast Oakland County stood at just 2.6 percent during the third quarter. Notable deals include IQ Manufacturing's purchase of a 28,000-square-foot building on Centre Road in Auburn Hills and Moghul Foods LLC's acquisition of a 28,000-square-foot facility on Stephenson Hwy in Madison Heights. The average asking rate in the submarket has risen 10 percent over the past two years, as low vacancies continue to put upward pressure on rates.

Southwest Oakland County
The Southwest Oakland County industrial vacancy rate fell 40 basis points to 7.1 percent during the third quarter, as roughly 186,000 square feet was absorbed. Notable deals include Salt Mine of Southfield LLC's purchase of a 74,000-square-foot building on Eight Mile Road in Southfield; Keford Collision & Towing's move into 26,000 square feet on Grand River in Novi; and Randazzo Heating and Cooling's 17,000-square-foot lease on Industrial Park Drive in Farmington Hills. Meanwhile, Multimatic Inc. completed construction of a new, 25,000-square-foot advanced vehicle development and driving simulation center at 25540 Seeley Road Novi. Construction activity rose 7.0 percent to 1.35 million square feet, as Bluewater Technologies Group Inc. began building a 90,000-square-foot research and development facility on Twelve Mile in Novi. Build-to-suit projects account for 1.2 million square feet of active construction in the submarket. The largest of these projects is the 500,000-square-foot facility that Hans Power and Water is building on Grand River Avenue in New Hudson. Other build-to-suits are underway for A123 Systems (128,000 square feet), Zeiss Industrial Metrology (83,000 square feet), Truck-Lite Company (40,000 square feet), Berkshire eSupply (194,000 square feet), Hexagon AB (68,000 square feet) and Boulder Properties (27,000 square feet). Meanwhile, six speculative projects totaling 1.0 million square feet are under construction. The facilities range in size from 12,000 to 92,000 square feet.

Macomb County
Macomb County's industrial vacancy rate edged up 10 basis points to 2.4 percent during the third quarter of 2019. The market for existing industrial space is showing signs of a slowdown with several new vacancies popping up across the county. A few notable vacancies included 45,000-square feet on Danview Technology Court in Shelby Township and 40,000 square feet on Sherwood in Warren. Despite growing vacancies, the submarket posted just over 84,000 square feet of positive absorption, mostly from pre-leased construction completions. HTI Cybernetics Inc. completed and moved into its 189,000-square-foot facility at 40033 Mitchell Drive in Sterling Heights. Although the market for existing space might be softening, new construction remains robust. Aperam, a producer of specialty steels, began construction on a new, 100,000-square-foot facility on Eighteen ½ Mile in Sterling Heights. This new build-to-suit follows two other major projects currently underway: SAPA Transmission's 110,000-square-foot facility on Twenty Four Mile Road and Kroll International's 54,000-square-foot building on Danview Technology Court in Shelby Township. Macomb County has three speculative developments underway. The largest is Ashley Capital's 569,000-square-foot Liberty Park development in Sterling Heights. The second largest is a 65,000-square-foot facility that Niko's Import & Export, LLC is developing in Macomb Township. Bringing up the rear is a 17,000-square-foot development that C&D Building Company is building in Shelby Township.

Southern Wayne County
The Southern Wayne County industrial vacancy rate held at 1.9 percent during the third quarter. JW Logistics Operations, LLC's 51,000-square-foot lease on Trolley Drive in Taylor accounted for the bulk of absorption. Meanwhile, Uncle Ray's LLC leased 90,000 square feet of distribution space on Sibley Road in Brownstown. Bulk warehouse/distribution space continues to perform well. The submarket's inventory of nearly 13.0 million square feet of Class A bulk warehouse space is 100 percent leased, while the Class B bulk warehouse inventory of 13.5 million square feet has a vacancy rate of just 2.9 percent. Ashley Capital is currently speculatively building two developments, Crossroads Distribution Center #4 and #5, to capitalize on demand in the tight bulk warehouse market. The two Belleville facilities will add close to 1.0 million square feet of new supply to the market when completed in mid-2020. Subaru Research and Development Inc.'s 70,000-square-foot high-tech facility on Michigan Avenue in Van Buren is the submarket's one major build-to-suit project.

Western Wayne County
The Western Wayne industrial vacancy rate fell 20 basis points to 2.6 percent during the third quarter, as just over 110,000 square feet was absorbed. City Recyclers Inc.'s 120,000-square-foot lease on Beech Daly in Dearborn Heights was the largest deal of the quarter. Other notable deals include Oakland Standard LLC's 35,000-square-foot lease on Newburgh and MGA Research Corporation's 20,000-square-foot deal in Livonia. Absorption was slightly offset by a 50,000-square-foot vacancy at the Flint Group Industrial Building on Beck Road in Plymouth and a few smaller vacancies, such as the 15,000-square-foot blocks on Glendale and Galleon Street in Livonia. Construction activity grew 21.0 percent to 613,000 square feet during the quarter, as Cooper Standard began building its 110,000-square-foot facility at Seven Mile & Haggerty Road in Northville.

City of Detroit
The city of Detroit's industrial vacancy rate held at 11.4 percent during the third quarter. The most notable deal was Faurecia's 181,000-square-foot sublease at 12900-13000 Oakland Park in Highland. A 50,000-square-foot vacancy was created on Hoover Road. Meanwhile, Comprehensive Logistics Inc.'s 346,000-square-foot distribution facility on Wyoming became available. New construction will tick up, as Italian automotive supplier Tiberina Group will soon begin construction on a 180,000-square-foot manufacturing plant in the city.

About Newmark Knight Frank
Newmark Knight Frank ("NKF"), operated by Newmark Group, Inc. ("Newmark Group") (NASDAQ: NMRK), is one of the world's leading and most trusted commercial real estate advisory firms, offering a complete suite of services and products for both owners and occupiers. Together with London-based partner Knight Frank and independently-owned offices, NKF's 16,000 professionals operate from approximately 430 offices on six continents. NKF's investor/owner services and products include investment sales, agency leasing, property management, valuation and advisory, diligence, underwriting, government-sponsored enterprise lending, loan servicing, debt and structured finance and loan sales. Occupier services and products include tenant representation, real estate management technology systems, workplace and occupancy strategy, global corporate services consulting, project management, lease administration and facilities management. For further information, visit www.ngkf.com. Newmark Group is a publicly traded subsidiary of BGC Partners, Inc. ("BGC") (NASDAQ: BGCP), a leading global brokerage company servicing the financial and real estate markets.

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