Industrial property outlook improves

Posted on October 25, 2012

After years of decline, Metro Detroit’s industrial real-estate market is on the upswing, with once-shuttered warehouses and foreclosed manufacturing spaces filling up again.

As a result, landlords report that newer and well-equipped sites are being snapped up in hot spots such as Macomb and southwestern Oakland counties. All areas in the region have experienced vacancy reductions except Detroit and Livingston County, which has a low 7.2 percent unfilled property rate.

Rents have largely stabilized and are likely to rise in the hot areas, experts predict.

Metro Detroit’s industrial vacancy rate fell to 12.4 percent in the third quarter this year from 15.7 percent in the same period two years ago, according to the Southfield office of commercial real estate firm Newmark Grubb Knight Frank.

“In 2009, everybody said the car business is dead and industry is gone,” said Fred Liesveld, who heads Newmark Grubb’s Detroit area office.

“This proves that is not the case.”

Real-estate analysts agree that they expect companies to need more space for warehousing and manufacturing in Metro Detroit in the years ahead, especially as consumer confidence improves and auto sales continue to grow.

But they note it will take many years to get back to the levels of early 2000, when vacancy rates were less than 5 percent.

Metro Detroit won’t turn the corner, analysts said, until there is a resurgence in largely depressed areas such as Downriver and Detroit, or there is a rise in building permits and facilities being built “on spec” — meaning construction firms build a structure with their own money but without a signed tenant.

Construction won’t begin until vacancy rates drop below 10 percent across the region, Liesveld said. Some communities are near or below that threshold.

In Macomb County, where medium and large-scale buildings are in significant demand, Sterling Heights’ vacancy rate is 6.4 percent and Warren’s is 8.3 percent, according to Newmark Grubb. In Oakland County, Auburn Hills is at 8.7 percent.

“On the metro level, we’ve seen more demand in the past 18 months in Detroit than we have seen in more than 10 years,” said Noam Kleinman, a real estate economist for Boston’s Property and Portfolio Research, a commercial real-estate forecasting and analyzing firm.

Investors across the nation are noticing Metro Detroit’s renewed economic strength and availability of low-cost buildings that need little or modest renovation, Kleinman said.

Two years ago, there was a glut of buildings with heavily discounted leases in areas including Auburn Hills, said Paul Choukourian, managing director of the Detroit-area office for Colliers International, a commercial and residential real-estate firm.

“Now, the options have gone away,” he said. “The market has tightened up.”

Metro Detroit — the seventh largest industrial real estate market in the country, according to Colliers International — has had a flurry of leasing and buying properties in the past 18 months. Auto supplier A.G. Simpson Inc. bought a former 360,000-square-foot Borg Warner plant in Sterling Heights.

One of the largest leases signed in the region was for a 286,000-square-foot manufacturing facility in Warren. KUKA Flexible Production Systems leased 147,000 square feet; H.B. Stubbs Company leased the remaining 139,000 square feet. Ashley Mound Business Center LLC then purchased the facility as an investment.

Metro Detroit furniture chain Gardner-White added 455,000 square feet in Auburn Hills when it moved its headquarters from Warren. The site also houses a modern distribution center, a warehouse outlet and a 90,000-square-foot store.

The flex facility had many tenants before Gardner-White and was empty for years before this purchase, the company said.

“We had absolutely outgrown our facilities,” said Gardner-White Furniture President Steve Tracey. “Our business has been fabulous for the last four years, (so) we started looking around. We loved Warren, but Auburn Hills had lots of room for us to expand.”

Filling older buildings is a key to the region’s industrial real estate health, analysts said. If too many older buildings sit while new construction gets filled, it hurts Metro Detroit’s overall vacancy rate.

The region also benefits when antiquated facilities in cities such as Detroit are torn down; they are too expensive to renovate and unlikely to be filled.

Because industrial companies tend to recover quicker than other parts of the economy, they are faster to grab empty real estate as they expand again, said Brandon Podolski, who leads the industrial-sector division at Plante Moran CRESA, a Southfield real-estate consulting firm.

Metro Detroit has many advantages over other out-of-state regions in refilling its industrial real estate, Podolski added, including a wealth of buildings available at historically low prices and many communities that want new development.

In June, auto supplier MAHLE Industries Inc. acquired the former Nailco facility in Farmington Hills. The 50,000 square feet of office and warehouse space allows the company to consolidate its North American operations on one campus and locate 430 employees there by 2013, said company President Roland Zitt.

Being in southeastern Michigan gives MAHLE access to a highly trained work force that allows the company to continue bringing its engine products to its customers, Zitt said.

In a market with many industrial sites from which to choose, the southwestern Oakland location provided many advantages, he said.

“Perhaps most importantly, by acquiring the former Nailco site,” Zitt said, “we will have a traffic light serving what will become the new main entrance to our Farmington Hills campus.”

Karen Dybis, The Detroit News.