Newmark Grubb Knight Frank (NGKF) released its third quarter 2016 industrial trends data for the Detroit region this week. According to the reports, user demand for large-block industrial space continues to fuel absorption and new construction in the area.
Metro Detroit’s industrial market vacancy rate fell 40 basis points to 5.6 percent during the third quarter of 2016, as just over 1.8 million square feet was absorbed. Year-to-date absorption of 7.3 million square feet is on par with the 7.7 million square feet seen for the first three quarters of 2015. The market continues to show strong demand for both modern bulk warehouse and large block manufacturing facilities just as the availability of space over 100,000 square feet is becoming nearly nonexistent. Users with large space requirements are flocking to areas like Western Wayne County where existing space requirements may be met. In the Oakland and Macomb County submarkets, the number of build-to-suit projects under construction continues to grow, as users have very limited options for exiting space.
“Metro Detroit’s industrial market continues to suffer from under capacity,” said John DeGroot, vice president of research in NGKF’s Detroit office. “New construction over the past three years has produced 33 pre-leased facilities totaling 4.3 million square feet and industrial users are still demanding more space. We expect another four million square feet of new construction to come online by the end of 2017.”
“The construction numbers we are seeing are truly profound and is a testament to the strength of Detroit’s industrial sector,” said Fred Liesveld, managing director of NGKF’s Detroit office.
Limited bulk space availabilities around Metro Detroit, particularly in neighboring Southern Wayne County, is causing bulk industrial users to focus on the Western Wayne County submarket. As a result, the submarket’s vacancy rate is taking a nosedive, falling 170 basis points to 4.4 percent during the third quarter, as nearly 1.8 million square feet was absorbed. Three major deals accounted for the bulk of absorption: Ford Motor Company’s 754,000-square-foot lease at the Livonia Corporate Center; Fuyau’s purchase of the 526,000-square-foot 909 North Sheldon Road facility in Plymouth; and KuKa Systems North America’s 384,000-square-foot lease at the Livonia Distribution Center. Year-to-date, the submarket has posted roughly 2.3 million square feet of positive absorption. As with most of Metro Detroit’s submarkets, the supply of available space is becoming increasingly limited due to ever-increasing demand. In 2016, Ashley Capital retrofitted the formerly vacant, one million-square-foot GM Powertrain Livonia Engine Plan to accommodate multiple bulk users. Already, the complex is 80 percent occupied. Similar to the Southern Wayne County submarket, no major construction projects are currently underway in Western Wayne County despite dwindling vacancy and active demand for bulk space. However, projects are close to moving from the planned stages to breaking ground. One major planned development that is likely to break ground by early 2017 is Ashley Capital’s Livonia Corporate Center I & II, two buildings totaling 172,646 and 741,984 square feet, respectively. The planned development will be located along I-96, between Middlebelt Road and Inkster Road.
Limited supply in Southern Wayne County has slowed absorption rates. The submarket’s overall vacancy rate held steady at 2.7 percent during the third quarter. The submarket’s 24.1 million-square-foot inventory of Class A & B bulk warehouse saw its vacancy rate rise slightly from 1.2 percent to 2.1 percent during the quarter. The uptick was primarily attributed to a 90,000-square-foot vacancy in the Van Buren Business Center and a 75,000-square-foot space in the Romulus Business Center III. Bulk warehouse vacancies haven’t stayed vacant for long in recent years as this market segment remains in high demand. Since 2013, nearly 4.4 million square feet of bulk warehouse has been absorbed, an average of 292,000 square feet per quarter. With limited vacancies, many users are looking to the Western Wayne submarket to fill requirement in excess of 100,000 square feet. While no construction projects are currently underway in Southern Wayne to fill the demand for space, projects are speeding through the planning stages. One such development is the Romulus Commerce Center, a four-building complex totaling one million square feet near the intersection of I-275 and Eureka on Wahrman Road. Construction of the new facility will begin in the fourth quarter. While the market waits for new project to be built, scarcity of available space will remain an issue well into 2017. New users and companies renewing leases will see higher occupancy costs as asking rents are quickly rising. In fact, since 2013 the average asking rent for bulk warehouse space has risen from $3.57 per square foot to $4.60 per square foot or 10 percent per year.
The Southeast Oakland County submarket’s vacancy rate fell 10 basis points to four percent during the third quarter, as 228,000 square feet was absorbed. Two construction projects came to completion during the quarter: Recaro Child Safety Systems, Inc.’s 89,000-square-foot facility on Harmon Road; and Shield Material Handling’s 78,000-square-foot facility on Atlantic Boulevard in Auburn Hills. Increased demand in the submarket continues to fuel new construction projects. The latest is Martinrea International Inc.’s 108,000-square-foot build-to-suit facility on Opydke Road that broke ground during the third quarter. This adds to the three other construction projects that are ongoing and expected to be complete by 2017; Tri-County Commerce Center’s 575,000-square-foot speculative development; Louca Mold’s 124,000-square-foot completion of Relco’s former build-to-suit; and Jenoptik Automotive’s 100,000-square-foot build-to-suit. Over the past two years, nine build-to-suit construction projects have been completed, totaling over 1.4 million square feet. The availability of physically vacant space is very limited in Southeast Oakland; roughly 30 out of more than 1,200 industrial properties over 20,000 square feet are physically vacant. Quality vacancies do not have much exposure time to the market. Gestamp Automocion, for example, immediately took 37,000 square feet vacated when Recaro Child Safety Systems relocated into its newly constructed building. The limited supply of available space is raising occupancy costs, as asking rates grow even faster. The average asking rate during third-quarter 2016 grew $0.15 per square foot to $6.20 per square foot.
Southwest Oakland County’s industrial submarket continues to see strong demand, pushing vacancies even lower and asking rates higher. The submarket’s vacancy rate fell 50 basis points to 5.2 percent during the third quarter, as 378,000 square feet was absorbed. The bulk of absorption came from Cosma Body Assembly Michigan, which moved into its newly constructed, 150,000-square-foot facility on Grand River Avenue in New Hudson. Cosma’s construction completion is just one of many new construction projects in Southwest Oakland. In fact, the submarket has the most construction projects underway in Metro Detroit with 11 buildings scheduled for completion in the coming quarters. Over the past three years, the submarket has seen eight construction completions totaling 785,000 square feet. By 2017, 19 buildings totaling 1.4 million square feet will have been constructed since 2013. The latest company to announce a new construction project is Daifuku North America Holding Co., which is in the process of building a 76,000-square-foot facility on Cabot Drive in Novi. New construction continues to be active, as existing space is getting leased up at a fast pace, leaving few options for industrial users with specific building requirements. Just recently, the submarket saw companies such as Google Inc., Neapco Drivelines, Busche Performance Group, Fives Cinetic Automation and Danlaw, Inc. occupy or commit to new leasing totaling over 150,000 square feet. Not only is increasing demand fueling new construction, but it is also driving up asking rates that are the highest in Metro Detroit. During third-quarter 2017, the average asking rent climbed $0.21 per square foot to $7.27 per square foot.
Macomb County’s industrial market vacancy rate fell 10 basis points to 2.5 percent during the third quarter, as 88,000 square feet was absorbed. Some notable deals during the quarter were: Nutrafizz Products’ 70,000-square-foot lease on Stephens Road in Warren and; Warrior Sports, Inc.’s 27,000-square-foot lease on Nineteen 1 / 2 Mile in Sterling Heights; and Toolcraft, Inc.’s purchase of a 22,000-square-foot building. With the lowest vacancy in Metro Detroit, Macomb County continues to attract new construction. Most recently, Lipari Foods announced it will invest $39 million to build a 252,000-square-foot freezer-warehouse facility on Bunert Road in Warren. Also, Mitchell Plastics announced that it will invest $20 million to construct a 200,000-square-foot manufacturing plant in Sterling Heights’ Enterprise Industrial Park (the former Sunnybrook Golf Course). Other projects include Titan Group’s development of nearly 300,000 square feet of speculative construction in Shelby Township’s Cherry Creek Corporate Park. When completed in 2017, Cherry Creek Corporate Park will add three separate industrial facilities to the market, ranging from 56,000 square feet to 122,000 square feet.
The city of Detroit did not see much absorption of existing space during the third quarter, as its vacancy fell just 10 basis points to 19.6 percent. Construction of new, more modern facilities continues to be strong. Since 2015, three industrial facilities totaling 765,000 square feet have been built for companies such as Cardinal Health, Chrysler and Android Industries. By the end of 2017, another one million square feet will be built and occupied by Flex-N-Gate, Lear Corporation, Sakthi Automotive, Universal Truckload Services and YFS Automotive Systems.
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