There appears to be a start of a building boomlet in parts of Metro Detroit’s industrial market as the auto industry seeks more modern spaces to accommodate expansion amid tight conditions. Companies that serve automakers have commissioned four of the last five build-to-suit developments in the area, while also accounting for nearly half of the largest new leases this quarter.
More than 1.2 million square feet of industrial property was absorbed in the first quarter through leases and purchases,pushing the overall vacancy rate down to 9.6 percent from 9.8 percent. The largest amount of vacant space remains in the City of Detroit submarket, which has remained stagnant for three years, while the three biggest industrial submarkets - Macomb, Southeastern Oakland and Western Wayne - are showing strong leasing and increased development activity. Nearly 1 million square feet of new construction is underway in those three submarkets alone, with two other projects in the works.
“The auto industry, especially, is interested in the newest, most modern facilities to stay competitive as it bounces back from the recession and grows its workforce,” said Fred Liesveld, executive vice president, managing director of Newmark Grubb Knight Frank (NGKF) in Detroit. “Macomb and Southeastern Oakland County submarkets, where vacancy rates are below 7.0%, are seeing the highest levels of new construction. Development interest is also picking up in Western Wayne, where planned construction projects are getting closer to breaking ground.”
Absorption of industrial space around the Detroit metro is a reflection of larger tailwinds supporting the state’s economy. According to NGKF Global Corporate Services’ Consulting group, total employment in motor vehicle and vehicle parts manufacturing now exceeds the level of employment at the end of 2008.
“Total auto sector manufacturing employment is 6.4% higher in Michigan now than five years ago. Investment and growth across the automotive industry, coupled with some meaningful business climate improvements made by the State of Michigan, has created positive momentum around metro Detroit,” according to Gregg Wassmansdorf, senior managing director, Consulting.
Senior Managing Director Geoff Hill notes, “Expect to see higher lease rates and sales prices as inventory remains tight and industrial tenants continue to expand with the recovering economy. We will see not only build-to-suit projects in 2014, but also speculative construction coming into the pipeline this year.”
2014 first quarter highlights by county:
• Southeastern Oakland’s industrial vacancy rate fell to 6.9% in 1Q14 from 7.2% in 4Q13 as just over 205,000 square feet was absorbed.
• Notable deals include Hanwha TechM USA LLC’s 90,000-square-foot lease at 1500 Highwood Road in Pontiac and Allied Bindery LLC’s 54,000-square-foot lease on Dequindre Road in Madison Heights.
• Southeast Oakland has improved remarkably since 1Q11. Vacancy has fallen by 7.6 percentage points and the average asking rate has risen 4.8%.
• More than 730,000 square feet is under construction as low vacancy causes build-to-suit projects to heat up.
• Notable build-to-suit projects include Faurecia’s 278,000-square-foot development on High Meadow Circle in Auburn Hills, GKN’s 168,000-square-foot development on Opdyke in Auburn Hills and Relco’s 127,000-square-foot development on Taylor Road in Auburn Hills.
• Macomb County’s industrial vacancy rate fell to 5.7% in 1Q14 from 5.8% in 4Q13 as over 75,000 square feet was absorbed.
• Macomb has posted 12 straight quarters of positive absorption. Since 1Q11, the vacancy rate has dropped 7.8 percentage points and the average asking rate has increased 5%.
• One notable deal was Mayco’s 93,000-square-foot lease on Mancini Drive.
• Notable developments underway include a 120,000-square-foot build-to-suit building near M-53 and 23 Mile Road for JVIS USA LLC and a speculative 28,000-square-foot building on Sabrina Drive, both in Shelby Township.
• The Western Wayne industrial vacancy rate fell to 8.8% in 1Q14 from 9% in 4Q13. More than 260,000 square feet was absorbed.
• The submarket’s largest deal was Mobis North America’s 132,000-square-foot lease at 9075 North Haggerty Road.
• Notable developments include Singh’s 52,000-square-foot facility on Executive Drive in Canton and Schostack’s mixed-use development on the corner of Seven Mile Road and Haggerty Road in Northville. Redico LLC is in the planning stages for R&D/Flex development on the 59 acres it recently acquired at Five Mile & Beck Roads in Northville.
• The Southwestern Oakland industrial vacancy rate fell to 9.9% in 1Q14 from 10.2% in 4Q13. More than 136,000 square feet was absorbed.
• The submarket’s largest deal was Fujitsu Ten Corporation of America’s 54,000-square-foot lease of newly constructed space on Hudson Drive. Over the past three years, the Southwestern Oakland submarket has seen its vacancy rate fall 2.1 percentage points, and its average asking rate rise 6.5%.
• Southern Wayne’s vacancy rate fell to 8.5% in 1Q14 from 8.6% in 4Q13. More than 152,000 square feet was absorbed.
• Notable transactions include Renaissance Global Logistics, LLC’s 90,000-square-foot lease at the Northline Industrial Center; Exel Logistics’ 98,000-square-foot lease at the Romulus Business Center; and Michigan Pneumatic Tool, Incorporated’s purchase of a 75,000-square-foot facility on Middlebelt Road in Romulus.
• Over the past three years, Southern Wayne’s vacancy rate has fallen in half; from 16.3% during the first quarter of 2011 to its current rate of 8.5%. The average asking rate during that time frame has gone up 8.0%.
• Detroit’s industrial vacancy rate fell to 24.5% in 1Q14 from 25.2% in 4Q13 as 327,000 square feet was absorbed.
• The bulk of positive absorption came from Futuramic Tool & Engineering Company’s expansion and purchase of a 250,000-square-foot facility on Hoover Road after outgrowing their space in Southfield and Warren.
• Detroit’s three-year trend indicates a market returning to 2011 levels for both the vacancy rate and the average asking rate trend, which has remained flat at $2.56/sf.
To speak with a NGKF real estate, location, or economic incentives expert, please contact Mira Matic at email@example.com.
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