Newmark Knight Frank (NKF) released its second quarter 2019 industrial trends data for the Detroit region this week. According to the reports, new industrial construction continues to soar across Metro Detroit.
The Metro Detroit industrial market vacancy rate fell 10 basis points to 4.1 percent during the second quarter of 2019, as just over 800,000 square feet was absorbed. Year-to-date absorption totaled just over 2.0 million square feet, compared with 2.7 million square feet during the same period last year. As vacancies continue to dwindle, the bulk of absorption has come from new construction. Limited supply continues to spur new construction activity across Metro Detroit, particularly for large modern manufacturing facilities. Just in the second quarter, new construction starts increased 20.0 percent from the previous quarter to nearly 4.2 million square feet, while completions totaled 360,000 square feet. In Southeastern Oakland County, where the vacancy rate is just 2.6 percent, developers are demolishing The Palace of Auburn Hills, former home of the Detroit Pistons, to add new supply where demand has been the strongest in Metro Detroit.
“The rise in construction activity is proof that Detroit’s manufacturing sector continues to be in expansion mode,” said Fred Liesveld, managing director of NKF’s Detroit office. Fiat Chrysler’s $4.5 billion in new and expanded production facilities in the city of Detroit is leading the charge. Meanwhile, with vacancies so low, the redevelopment of the Palace of Auburn Hills and Summit Place Mall in Pontiac give developers much needed land to build.
John DeGroot, research director of NKF’s Detroit office added, “Since the fourth quarter of 2010, Metro Detroit’s industrial market has seen 35 straight quarters of positive absorption totaling nearly 60 million square feet. The vacancy rate over that period has fallen from 19 percent to just 4.1 percent. By the end of 2019, nearly 20 million square feet of new construction will have been completed since the expansion period began.”
The Southeast Oakland County industrial vacancy rate fell 40 basis points to 2.6 percent during second-quarter 2019, as just over 352,000 square feet was absorbed. The city of Auburn Hills is Metro Detroit’s hottest industrial market, with a vacancy rate of just 0.09 percent. Since 2017, companies including Wescast Industries, Inc., Mahindra, Esys Corporation, AM General Corporation, Incoe Corporation, Cooper Standard and Samsung SDI America, Inc. have each taken more than 100,000 square feet of industrial space in the city. Demand remains high, as Allison Transmission leased 108,000 square feet on Luella Lane during the second quarter. Other parts of the submarket also continue to see strong leasing activity: Valiant International, Inc. leased 90,000 square feet on Highwood in Pontiac, and Navistar, Inc. took 20,000 square feet on Enterprise Drive in Rochester Hills. Limited supply and persistent high demand have resulted in 3.2 million square feet of new construction completions since 2015. Nearly one-third of those completions were in Auburn Hills. The latest construction completion in Auburn Hills was a 108,000-square-foot speculative development that was completed in 2018 and is now 100 percent leased. In order to continue to meet market demand for new industrial space, developers are demolishing obsolete structures, as available vacant land is just as scarce. Developers Schostak Brothers & Company and Tom Gores recently announced plans to demolish the former Detroit Pistons arena, the Palace of Auburn Hills. The redevelopment of the 110-acre site has the potential to add nearly 1.0 million square feet of industrial space to the metro area. Meanwhile, Ari-El Enterprises Inc. is currently demolishing the former Summit Place Mall in Waterford, which will provide the firm with enough land to also build nearly 1.0 million square feet of industrial/commercial space. In terms of active construction projects around the submarket, FANUC America Corporation is currently constructing a 461,000-square-foot build-to-suit on Entrance Drive in Rochester Hills. The company’s new facility is expected to be completed by fourth-quarter 2019. The balance of Southeast Oakland’s 1.2 million square feet of active construction projects is Ashley Capital’s 695,000-square-foot speculative development in Hazel Park. This development follows the developer’s highly successful 575,000-square-foot Tri-County Commerce Center speculative development in Hazel Park, which is 90.0 percent leased.
The Southwest Oakland County’s industrial vacancy rate fell 20 basis points to 7.1 percent during the second quarter, as just over 247,000 square feet was absorbed. The bulk of the submarket’s absorption came from Veoneer, Inc.’s move into its 180,000-square-foot build-to-suit on American Drive in Southfield. Overall leasing activity was strong during the quarter. Notable deals include Future Pak Ltd.’s 31,000-square-foot deal on Cartier Drive in Wixom; RM Motorsports Inc.’s 26,000-square-foot lease on Wall Street in Wixom; and Leo & Kevin Enterprises, LLC’s 23,000-square-foot deal on Eight Mile Road in Southfield. Meanwhile, Century Sun Detroit Distribution and PM Tech each took 10,000 square feet of new space in Wixom. New construction activity jumped 56.0 percent during the second quarter with the start of Metro Detroit’s largest active build-to-suit project. Hans Power and Water began construction on a 500,000-square-foot facility on Grand River Avenue in Lyon Township, where the company will assemble water filtration devices.
Meanwhile, the submarket has three other major build-to-suit projects under construction in Novi: A123 Systems’ 128,000-square-foot facility on Twelve Mile Road; Berkshire E-Supply’s 211,000-square-foot building on Fourteen Mile Road; and Hexagon AB’s 67,000 square feet on Nadlan Court. Like Auburn Hills, Novi has one of the highest levels of construction activity as the result of demand for large modern industrial facilities. Since 2017, just over 965,000 square feet of mostly build-to-suit industrial facilities greater than 100,000 square feet have been built in Novi. However, Auburn Hills has a 0.9 percent vacancy rate, compared with 7.3 percent for Novi. The bulk of Novi’s available inventory comprises R&D/flex space of less than 30,000 square feet, with the product type having a vacancy rate of 11.0 percent. On the speculative construction front, four projects ranging from 24,000 to 90,000 square feet of general industrial and warehouse space are currently under construction in Novi, Wixom and New Hudson, which are expected to be completed by the end of the year.
The Detroit industrial vacancy rate fell 10 basis points to 12.4 percent during the second quarter, as 218,000 square feet was absorbed. This follows the previous quarter’s increased vacancies in old, third-generation buildings on West Fort Street and Cadieux Avenue. A growing number of companies are building new industrial facilities in the city. Wolverine Packing Company just completed construction on an 180,000-square-foot build-to-suit at 1800 East Canfield Street. Meanwhile, Waymo LLC, an affiliate of Google, Inc. and manufacturer of self-driving car systems, is upgrading the former American Axle plant in Hamtramck. Automotive supplier Tiberina Group plans to build a new manufacturing facility near that location. In addition, Dakkota Integrated System plans to build a 600,000-square-foot manufacturing plant in the city. All of this comes on the heels of Fiat Chrysler beginning construction on a new, $1.6 billion production facility at the Mack Engine complex. The new production facility is scheduled to be completed in late 2020.
The Macomb County industrial vacancy rate edged up 10 basis points to 2.3 percent during the second quarter, as just over 33,000 square feet of net vacancies were added to the market. The bulk of negative absorption came from a 130,000-square-foot vacancy at 7000 Nineteen Mile Road in Sterling Heights. Despite the uptick in vacancy, demand in the submarket remains brisk, with many buildings being re-leased or sold before going vacant. A few notable deals include MMI Engineered Solutions Inc.’s purchase of an 80,000-square-foot facility on Stephens Road in Warren; Weaver & Lipke, LLC’s purchase of a 42,000-square-foot building on Lipke Street in Clinton Township; and Frank Bacon Machinery Sales Company’s purchase of a 29,000-square-foot building on Ryan Road in Warren. Active construction activity rose 20.0 percent during the quarter to just over 1.0 million square feet. The latest project is a 110,000-square-foot production facility for SAPA Transmission that is being built on Twenty-Four Mile Road in Shelby Township. Macomb has two other build-to-suits under construction, one for HTI Cybernetics Inc. in Sterling Heights and the other for Kroll International Inc. in Shelby Township. Active speculative construction includes: Ashely Capital’s 569,000-square-foot Liberty Park facility on Mound Road in Sterling Heights; Niko’s 65,000-square-foot building on Regency Center Drive in Macomb Township; and C&D Building Company LLC’s 18,000-square-foot facility on Central Industrial Drive in Shelby Township.
The Western Wayne County industrial vacancy rate fell 20 basis points to 2.6 percent during the second quarter, as just over 116,000 square feet was absorbed. Accounting for the bulk of absorption was XPO Last Mile, Inc.’s 40,000-square-foot expansion on Michigan Avenue in Canton; Anderson Process’s 35,000-square-foot lease on Concept Drive; and Powers And Sons, LLC’s 27,000-square-foot deal on Galleon Drive in Plymouth. On the construction front, automotive supplier Webasto Roof Systems Inc. started construction on a 300,000-square-foot manufacturing facility at Schoolcraft & Haggerty Roads in Plymouth. Since 2017, just over 2.6 million square feet of industrial space has been completed in Western Wayne. The bulk of new construction, 2.4 million square feet, has been for bulk warehouse users, including Amazon, Inc., Republic National Distributing Co, Experi-Metal Inc. and Penske Logistics LLC. Webasto’s new facility will be the submarket’s fourth significant manufacturing facility built in the past two years. The other three facilities were built for Oerlikon Metco, CW Bearing USA Inc. and Marimba Automotive.
The Southern Wayne County industrial vacancy rate fell 20 basis points to 2.1 percent during the second quarter, as nearly 73,000 square feet was absorbed. Demand for bulk warehouse remains strong, as tenants quickly refilling new availabilities. Beaumont Health recently moved into 124,000 square feet in the Crossroads Distribution Center in Belleville. Elsewhere in the submarket, Uncle Ray’s LLC leased 90,000 square feet at 20509 Sibley Road in Brownstown, and Mattress Firm, Inc. took 47,000 square feet in the Van Buren Commerce Center. Southern Wayne’s bulk warehouse inventory remains very limited. Notably, the submarket’s 13.0 million-square-foot inventory of Class A bulk warehouse space is 100 percent occupied. Moreover, just 2.8 percent of the submarket’s 13.5 million-square-foot inventory of Class B bulk warehouse space sits vacant.
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.
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