activity in existing inventory peaks, focus shifts to … in existing inventory peaks, focus shifts...
TRANSCRIPT
Activity in Existing Inventory Peaks, Focus Shifts to New Construction
Research & Forecast Report
WEST MICHIGAN | INDUSTRIALQ2 2016
Key Takeaways> Transaction frequency has been strong throughout the last few years, despite dwindling viable existing options and the absence of much new construction. This has resulted in a dried-up current state of inventory and plateaued activity levels.
> An ongoing issue affecting companies’ production, and subsequently their real estate decisions, is a lack of skilled labor.
> Because of new construction, we see overall average rental rates continue to stay strong throughout the second half of 2016 and into 2017.
Executive SummaryThe West Michigan commercial real estate market continues to display many of the positive characteristics of the state and regional economies. It also begs many of the same questions going forward. While recovery from the recession of the mid-late 2000’s has been steady and consistent, the realities of economic cyclicity loom. Despite economic indicators such as employment, GDP, consumer confidence, manufacturing PMI and auto sales all showing continued positive growth we are seeing momentum slow and outlook tempered.
The same can be said about the region’s industrial real estate. The first half of 2016 was yet again positive, but had a net absorption total 44% less than the same time frame a year before. The market absorbed more than 200,000 square feet in the second quarter – a welcomed reversal from a negative first quarter – however the second half of the year will be met with cautious optimism and hopeful-yet-realistic expectations. After an impressive second half of 2015, which saw nearly 320,000 square feet newly occupied, we again expect a
Market IndicatorsRelative to prior period Q2 2016 Q3 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 | Q2 2016 | Industrial | Colliers International
# Employed # Hours Worked/Week
Manufacturing Labor Statistics of Michigan50
45
40
35
30
25
‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16
$1,000
$950
$900
$850
$800
$750
year-over-year decreased total (albeit still positive) in the latter portion of 2016.
Although the number of industrial sale transactions quarter-over-quarter and year-over-year remain nearly unchanged, industrial lease transactions in Kent County actually spiked this quarter. Compared to the same quarter a year ago, leases executed rose by 8.80%; although as previously mentioned, we see activity now being near its peak.
Market ActivityThe overall industrial market now sits at 6.02% vacant after a strong second quarter. The historically stout Southeast submarket was again the dominant area for industrial activity, with 131,305 square feet absorbed. Notable activity in the area included MSC Industrial Direct moving from the southwest city of Wyoming to 4171 40th Street SE and Custom Powder & Fabricator Co. moving into and absorbing 34,342 square feet at 2100 Nelson Avenue SE. Additionally, RHD Tire purchased the 107,000 square foot former-Alliance Beverage warehouse/distribution building at 650 36th Street SE.
One company moving out of the Southeast submarket is Brenntag Great Lakes. The chemical distributor closed its 23,500 square foot facility at 3900 44th Street SE and is expanding into 40,000 square feet of space at 1100 Hynes Avenue SW. Both the tenant and landlord came to an agreement to contribute in retrofitting the space for fire containment to suit the use of the space, an example of creative and collaborative problem solving to get a deal done – something that is growing ever-difficult in current market conditions.
Other movers in the market included Contour Millworks leasing 5,520 square feet on Buchanan Avenue SW and Hudsonville Products, LLC purchasing the 26,300 square foot facility at 1739 Elizabeth Avenue NW.
Overall weighted asking rates dropped a bit in the second quarter to $3.21 NNN, but the drop was due mostly to a single building rather than an overall decline in the market’s value. 3800 Eastern Avenue was put on the market for the first time since 2006 and due to its size and age, a weighted list price for the building of $2.67 NNN pulled the market average back just a bit. Outside of this property, the
$4.50
$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
- Continued on page 4
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Term
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Total Inventory & Vacancy Rate
Completions vs. Absorptions
Occupancy Rate
2Q12 4Q12 2Q13 4Q13 2Q14 4Q14 2Q15 4Q15 2Q16
50,000,000
45,000,000
40,000,000
35,000,000
30,000,000
25,000,000
20,000,000
15,000,000
10,000,000
5,000,000
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95%
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93%
92%
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1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16
800
600
400
200
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Thou
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SF
# of Transactions Weighted Average Asking Rate
2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
Source: Michigan Department of Technology, Management & Budget
Weekly Earnings
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400
647,
700
614,
800
566,
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444,
500
463,
400
499,
500
527,
200
544,
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570,
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3 West Michigan Research & Forecast Report | Q2 2016 | Industrial | Colliers International
Leasing Activity Property Name Size (SF) Tenant City
2100 Nelson Avenue SE 34,342 Custom Powder & Fabricators, LLC
Grand Rapids
3056 Walker Ridge Drive NW 26,500Distribution
International Southwest, Inc.
Walker
5300 Broadmoor Avenue SE 25,000 Wurth Industrial of North America Kentwood
3280 Hanna Lake Industrial Park Drive SE 11,850 Builder Services
Group, Inc. Caledonia
4141 Barden Drive 10,774 Neff Engineering Company
Grand Rapids
929 Alpine Commerce Park NW
5300 Broadmoor Avenue SE
Sale Activity Property Name Size (SF) Sale Price City
650 36th Street SE 107,007 $2,500,000 Wyoming
1739 Elizabeth Avenue NW 26,358 $300,000 Grand Rapids
5976 & 6090 Clay Avenue SW 26,178 $2,360,000 Wyoming
929 Alpine Commerce Park NW 3,810 $232,000 Grand
Rapids
3876 East Paris Avenue SE 1,497 $120,000 Kentwood
Industrial Market StatisticsSUBMARKET EXISTING INVENTORY
(NUMBER OF BUILDINGS)EXISTING INVENTORY
(SF)OCCUPIED
SPACE (SF) VACANCY RATE NET ABSORPTIONQ2 2016 (SF)
Downtown 272 14,729,429 14,161,805 3.85% 44,069
Northeast 111 5,141,009 5,037,303 2.02% 12,424
Northwest 263 16,118,594 14,940,816 7.31% 48,918
Southeast 663 48,099,302 45,016,250 6.41% 131,305
Southwest 484 26,449,370 24,766,794 6.36% -25,836
Outside Metro Area 91 4,085,701 3,803,110 6.92% -5,000
TOTALS 1,884 114,623,405 107,726,078 6.02% 205,880
PROPERTY SUBTYPE EXISTING INVENTORY (NUMBER OF BUILDINGS)
EXISTING INVENTORY (SF) VACANCY (SF) VACANCY RATE NET ABSORPTION
Q1 2016 (SF)
Flex Space 104 3,299,510 3,016,346 8.58% 27,862
Food/Freezer 21 3,215,625 3,215,625 - 107,007
General 1,270 38,947,768 36,267,903 6.88% -67,908
Manufacturing 336 45,452,617 43,509,713 4.27% 60,700
Mini Warehousing 6 172,250 172,250 - -
Truck Terminal/Cross Dock 17 768,814 712,414 7.34% -
Warehouse/Storage 130 22,766,821 20,831,827 8.50% 78,219
TOTALS 1,884 114,623,405 107,726,078 6.02% 205,880
market continued to push upwards. Like activity levels, this is likely at its medium-term peak. The Northeast submarket currently has the highest weighted asking rates at $4.95 NNN.
LaborPrior to the recession, manufacturing labor in Michigan totaled nearly 700,000 workers. However, from 2005 to 2009 that number steadily dropped off. Many workers left the industry to pursue more consistent employment, and while baby boomers started to retire, the new generation workforce largely avoided the industry as a career destination. In 2009, Michigan had less than 450,000 manufacturing employees, and while the number has been creeping back up over the past seven years, a gap still exists today (many of the new hires are under-skilled or part-time workers).
Organizations like West Michigan Works! and the West Michigan Chapter of the Associated Builders & Contractors have collaborated to host events to expose middle school, high school and college students to the industry trades. Additionally, institutions like Ferris State University are expanding programs aimed at facilitating the technical training required of certain skilled positions. The university just recently received support for a $30 million expansion and renovation to the school’s Center of Welding Excellence and Center for Advanced Manufacturing. The expansion will total nearly 34,500 square feet, while the renovation will be done to more than 47,000 square feet of existing space.
A Look AheadNew construction is again the predicted solution to lack of supply. Many companies have already expanded to fill their needs over recent years, and some just aren’t ready to grow quite yet. Those in the middle, who are actively pursuing new real estate options,
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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 CCIMPrincipalDIR 616 988 [email protected]
Jason DewittAssociate | HollandDIR 616 355 [email protected]
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Cheryl LindgrenExecutive AssistantDIR 616 988 [email protected]
Steve Marcusse SIOR, CCIMPrincipalDIR 616 988 [email protected]
Tom Postma SIORPrincipal | HollandDIR 616 355 [email protected]
Karen VandenbossAssociate | KalamazooDIR 269 491 [email protected]
Trent WieringaAssociateDIR 616 988 [email protected]
Erin NugentSales Associate & Executive AssistantDIR 616 242 [email protected]
are increasingly considering new construction. “Due to longer delivery lead times and higher costs, users have largely avoided new construction in the past,” said industrial advisor Matt Abraham. “However we see construction as an inevitable solution to satisfy the growing pent-up demand.” For example, FedEx has outgrown its current facility at 3378 3 Mile Road and is constructing a new distribution center in Walker. They will occupy their current building until September of next year before completing their move. Also, Banyan Tree Ventures, LLC recently finished construction of its new 23,300 square foot building at the Jamestown Commerce Center in Hudsonville.