3q16 west michigan industrial report
TRANSCRIPT
New Construction Ramping Up, Releasing Pent Up Demand As Predicted
Research & Forecast Report
WEST MICHIGAN | INDUSTRIALQ3 2016
Executive SummaryLast quarter we reported that, due to an occupancy level reaching 94% and slowing activity, new construction would likely be the solution to allow the market to continue to grow. In some instances, replacement costs were prohibitive, and in others it was the belief that they could still find what they were looking for in existing inventory. However as of the end of the third quarter, we are currently tracking 17 industrial projects under construction totaling nearly 1.9 million square feet.
While much of this new construction is in the form of build-to-suit, some speculative construction has occurred. Previously this year, speculatively built 5300 Broadmoor Avenue signed its first lead tenant when Wurth Industries leased 25,000 square feet. In the third quarter, 44,000 square foot speculatively built 3833 Soundtech Court was leased in-full by Innovative Cleaning Equipment Inc.
“3833 Soundtech Court is a prime example of a local developer seeing a void in the market for a lease opportunity in a stand-alone industrial building with excellent corporate presence,” said industrial advisor Trent Wieringa, who helped broker the deal. “Innovative Cleaning Equipment quickly acknowledged the advantages of occupying a highly efficient, Class A, pre-fabricated building with expansion capabilities that supported long-term growth.”
Grooters Development has also shown confidence in the market with large speculative and tenant-in-tow development near 52nd Street SE and Kraft Avenue SE.
Additionally, a 6,000 square foot smaller spec building has broken ground on 3 Mile Road NW.
Because of the premium on existing space and the high cost of new space, listed rental rates across the board increased by a couple basis points to $3.63 (NNN) during the quarter. The Downtown submarket showed the largest increase in rates, with a 24.31% jump. This was largely due to Third Coast Development purchasing the former Benteler Automotive building at 320 Hall Street SW, leasing approximately 60,000 square feet to Custer Office, and subsequently
Market IndicatorsRelative to prior period Q3 2016 Q4 2016*
VACANCY
NET ABSORPTION
CONSTRUCTION
RENTAL RATE Note: Construction is the change in Under Construction. *Projected
Jeff Hainer Senior Research AnalystGlen Gerwatowski Assistant Research AnalystThe information contained herein is collected and analyzed by the Colliers International | West Michigan Research Department.
2 West Michigan Research & Forecast Report | Q3 2016 | Industrial | Colliers International
listing the balance of the building for $3.89 NNN (or 31.86% above the previous quarter submarket average).
Market ActivityThe industrial market had its largest quarter of positive absorption since the end of 2014, totaling 457,025 square feet. This brought the market vacancy rate down to 5.6%, the lowest we have ever reported. Manufacturing space currently sits 4.44% vacant.
There were 32 industrial leases reported in Kent County in the third quarter, a slight dip from a robust second quarter, but still above the 15-quarter average of 30.2. Many deals are being done off-market and aren’t publicly reported, a sign of just how tight things are and how creativity and relationships are playing an increasing role in getting deals done.
Notable expansions in the market include Lacks Enterprises constructing two new distribution facilities at 5711 Kraft Avenue SE totaling nearly 500,000 square feet; GR Pallets increasing their footprint by 33,000 square feet, moving into 41,000 square feet at 336 Straight Avenue SW in the Downtown submarket; Industrial Resources expanding their existing facility at 1860 Alpine Avenue NW by 21,000 square feet; and Advanced Packaging announcing 2017 plans for a 75,000 square foot expansion to their building on 40th Street SE.
Additionally, Laminin is expanding and is moving out of 4053 Brockton into a currently under-construction building at 3760 East Paris. Consolidated Electric took 12,155 more square feet on 36th Street SW and FedEx continues work on its new 351,000 square foot distribution terminal in Walker, which will be ready for business use in February. Proposed nearby industrial park, Walker View, has garnered a lot of interest and we expect to see construction activity continue to shift there in the future.
InvestmentIn April of 2013, Chicago-based CrossLake Partners purchased a 70% occupied industrial portfolio in West Michigan, comprised of six properties. After spending money on deferred maintenance and an
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MI Manufacturing Jobs as % of Total Current Employment $4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
Industrial Transactions and Weighted Average
Source: Research Department, Colliers International | West Michigan
50
45
40
35
30
25
20
15
10
5
0
Quarterly Absorption
Occupancy Rate
3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16
95%
94%
93%
92%
91%
3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16
800
600
400
200
0
-200
Thou
sand
s of
SF
# of Transactions Weighted Average Asking Rate
3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
Asking Rates
SUBMARKETQ2 2016
WEIGHTED AVG ASKING RATE
Q3 2016 WEIGHTED AVG
ASKING RATE
Downtown $2.88 $3.58
Northeast $4.95 $5.14
Northwest $4.89 $5.26
Southeast $3.36 $3.41
Southwest $3.45 $3.59
Outside Metro Area $3.25 $2.37
TOTALS $3.61 $3.63
ALL OTHER INDUSTRIES
86.8%
MANUFACTURING13.2%
PRE-RECESSIONQ1-2006: 13.8%
MID-RECESSIONQ3-2009: 10.6%
3 West Michigan Research & Forecast Report | Q3 2016 | Industrial | Colliers International
MI Manufacturing Jobs as % of Total Current Employment
Leasing Activity Property Name Size (SF) Tenant City
700 East Riley Street 230,020 Kenco Logistics Zeeland
3833 Soundtech Court SE 44,106 Innovative Cleaning Kentwood
4053 Brockton Drive SE 25,176 The Gluten Free Bar Kentwood
100 84th Street SW 15,000 ACP Entertainment
Byron Center
3516 Roger B. Chaffee Boulevard 5,000 MasTec Network
Solutions Wyoming
3833 Soundtech Court SE
1100 Hynes (CrossLake Portfolio)Sale Activity Property Name Size (SF) Sale Price City
CrossLake Portfolio 1,123,000 $30M+ West Michigan
4901 Clay Avenue SW 210,644 $6,350,917 Wyoming
5265 Kellogg Woods Drive SE 95,035 $2,319,804 Kentwood
1425 Burlingame Avenue SW 48,000 $924,960 Wyoming
3900 Patterson Avenue SE 45,590 $999,872 Grand Rapids
Industrial Market StatisticsSUBMARKET NUMBER OF BUILDINGS TOTAL INVENTORY
(SF)VACANT
SPACE (SF) VACANCY RATE OCCUPIED SPACE (SF)
NET ABSORPTIONQ3 2016 (SF)
Downtown 273 14,809,769 521,624 3.52% 14,288,145 175,354
Northeast 111 5,141,009 103,706 2.02% 5,037,303 0
Northwest 263 16,118,594 1,177,778 7.31% 14,940,816 21,000
Southeast 665 48,372,789 2,754,480 5.69% 45,618,309 148,606
Southwest 484 26,491,180 1,616,511 6.10% 24,874,669 96,065
Outside Metro Area 91 4,085,701 266,591 6.52% 3,819,110 16,000
TOTALS 1,887 115,019,042 6,440,690 5.60% 108,578,352 457,025
PROPERTY SUBTYPE NUMBER OF BUILDINGS TOTAL INVENTORY (SF)
VACANT SPACE (SF) VACANCY RATE OCCUPIED
SPACE (SF)NET ABSORPTION
Q3 2016 (SF)
Flex Space 104 3,299,510 261,584 7.93% 3,037,926 15,560
Food/Freezer 21 3,215,625 0 0.00% 3,215,625 0
General 1,271 39,156,287 2,584,780 6.60% 36,571,507 247,085
Manufacturing 338 45,617,749 2,023,247 4.44% 43,594,502 63,704
Mini Warehousing 6 172,250 0 0.00% 172,250 0
Truck Terminal/Cross Dock 17 768,814 56,400 7.34% 712,414 0
Warehouse/Storage 130 22,788,807 1,514,679 6.65% 21,274,128 130,676
TOTALS 1,887 115,019,042 6,440,690 5.60% 108,578,352 457,025
aggressive leasing campaign, the portfolio grew to 95% occupancy and was ready for re-sale. Founders Brewing Co. purchased one property independently, but the remaining five buildings were marketed together and purchased by California-based CORE Realty Holdings in September. The sale was the largest portfolio transaction in the market so far this year and represented a cap rate of 9.46%.
OutlookThe automotive industry in Michigan is often a good barometer of the overall industrial climate. While “The Big 3” auto manufacturers are located on the east side of the state, many of the parts suppliers for those companies are located on the west side, and their pipeline is directly influenced by decisions made in the auto industry.
Recently, at the Center for Automotive Research’s Management Briefing Seminar in Traverse City, executives discussed their sentiment towards the market. The results were mixed. While many are bullish on the industry, others were bearish on the overall economy – concerned with another economic downturn.
“There’s a real dichotomy happening,” said Charles Chesbrough, executive director of strategy and research and senior economist for Southfield-based Original Equipment Suppliers Association. “Buying conditions remain strong, job creation remains robust, we’re making strong product…but economic indicators suggest a correction. We may be due for a recession.”
The West Michigan market weathered the previous downturn about as well as could be expected, and manufacturing played a large
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Copyright © 2015 Colliers International.The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.
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WEST MICHIGAN INDUSTRIAL TEAMFOR MORE INFORMATION
Jeff HainerSenior Research AnalystDIR +1 616 988 [email protected]
Glen GerwatowskiAssistant Research AnalystDIR +1 616 988 [email protected]
Matt Abraham CCIMSenior Vice PresidentDIR 616 988 [email protected]
Jason DewittAssociate | HollandDIR 616 355 [email protected]
Cheryl LindgrenExecutive AssistantDIR 616 988 [email protected]
Steve Marcusse SIOR, CCIMSenior Vice PresidentDIR 616 988 [email protected]
Erin NugentSales Associate & Ex. AssistantDIR 616 242 [email protected]
Tom Postma SIORPrincipal | HollandDIR 616 355 [email protected]
Karen VandenbossAssociate | KalamazooDIR 269 491 [email protected]
Trent WieringaSenior AssociateDIR 616 988 [email protected]
John Kuiper SIOR, CCIMExecutive Vice President & Designated BrokerDIR 616 988 [email protected]
Tim Van NoordAssociateDIR 616 988 [email protected]
part in that. However, a drainage of talent has left the market thirsty for new skilled tradesmen. So in order for companies to continue to grow, and for a recession to be weathered again, the region must find new ways to produce and attract talent – a task that many have identified, but few have solved.
We expect 2016 to finish strong in the real estate sector, as many companies move into new homes or expand within existing ones. Rental rates will continue to adjust upwards as newer, more expensive spaces hit the market.